Preamble

The House met at a Quarter before Three of the Clock, Mr. SPEAKER in the Chair.

PRIVATE BUSINESS.

National Trust for Places of Historic Interest or Natural Beauty Bill [Lords],

Read the Third time, and passed, with Amendments.

Hastings Extension Bill [Lords],

As amended, to be considered Tomorrow.

Kent Electric Power Bill [Lords],

Pontypool Gas and Water Bill [Lords],

Wessex Electricity Bill [Lords],

As amended, considered; to be read the Third time.

Oral Answers to Questions — BRAZIL (BRITISH CREDITORS).

Sir Nicholas Grattan-Doyle: asked the Secretary of State for Foreign Affairs whether he will inform the Brazilian Government that, whatever the terms may be upon which the Aranha-Boucas unilateral arrangement is to be renewed, the four times repeated repudiation of public contractual obligations has caused such losses to British creditors of Brazil as to nullify the benefit of British export trade to Brazil; and will he request full reinstatement of Brazilian debt services to British subjects?

The Secretary of State for Foreign Affairs (Mr. Eden): As my hon. Friend was informed on 6th April last, the Council of Foreign Bondholders are in negotiation with the Brazilian Government in this matter. No request for assistance has been received from the Council by His Majesty's Government.

Sir N. Grattan-Doyle: Cannot pressure in some direction be brought to bear?

Mr. Eden: My hon. Friend will appreciate that this is, in the first instance, a matter for the Council of Foreign Bondholders. His Majesty's Government are perfectly willing to give any help if it is asked for, but it has not been asked for.

Sir N. Grattan-Doyle: Cannot the Government do something to improve the position?

Oral Answers to Questions — ABYSSINIA.

Mr. Thorne: asked the Secretary of State for Foreign Affairs how many countries have reported to the League of Nations at Geneva that they, with Germany, recognise the Italian Empire of Abyssinia?

Mr. Eden: There is no obligation on members of the League of Nations to report any such decision to the League and so far as His Majesty's Government are aware, no State has yet communicated with the League in this sense.

Oral Answers to Questions — CHINA (LOANS, DEFAULT).

Mr. Day: asked the Secretary of State for Foreign Affairs particulars of any information he has received from His Majesty's representative at Shanghai as to negotiations for payment for the consolidation of the unsecured and partially secured foreign obligations of China; and whether His Majesty's Minister has made it quite clear to the Chinese Government that any solution should provide for the payment in favour of all valid British claims at the earliest possible moment?

Mr. Eden: Settlements have been reached in all the negotiations relating to Chinese loans (secured, partially secured and unsecured) issued in London, on which defaults have occurred. I have no information regarding any negotiations which may be in progress for the settlement of defaults on other foreign obligations of China.

Mr. Day: Are we to understand from that that there are no further outstanding loans?

Mr. Eden: So far as loans issued in London are concerned.

Oral Answers to Questions — SPAIN.

Mr. Sorensen: asked the Secretary of State for Foreign Affairs whether any


restrictions have been imposed by General Franco and the insurgent forces on British nationals and British commercial and industrial interests in the Basque area; and, if so, of what nature?

Mr. Eden: No, Sir.

Captain Cazalet: Have we any commercial representative with General Franco with whom we may make a trade agreement when it is possible?

Mr. Eden: So far as Bilbao itself is concerned, a consular representative is on his way there now.

Mr. Sorensen: May we take it that no British mining interests more or less adjacent to Bilbao are affected, or likely to be affected?

Mr. Eden: The hon. Member will, no doubt, have seen a statement in the Press from Salamanca, to that effect.

Mr. G. Strauss: Will the Government take steps to see that supplies of iron ore from the Basque territory will he available to this country in the future as in the past?

Mr. Eden: That is exactly the point with which the statement deals.

Mr. Sorensen: asked the Secretary of State for Foreign Affairs whether he possesses, or will secure, information respecting the approximate number killed, wounded, and taken prisoner by both the insurgents and the Spanish Government in Spain since the beginning of hostilities?

Mr. Eden: As indicated in the reply given to the hon. Member on 3rd March last, there is no reliable information available on this subject.

Mr. Sorensen: Does the right hon. Gentleman intend to secure some information: Surely that would be most valuable as showing the results of modern warfare?

Mr. Eden: If no casualty lists are issued by either side, it is not possible for me to issue them.

Mr. Mander: Will foreigners in that total be in a majority?

Mr. Sorensen: asked the Secretary of State for Foreign Affairs whether he will take steps to ascertain and publish the

nature and extent of foreign assistance in men and material at the disposal of each side in Spain?

Mr. Eden: As I have previously explained, no means exist of obtaining an accurate estimate.

Mr. Lennox-Boyd: Can the right hon. Gentleman assure the House that no ships have left Odessa laden with munitions of war since the signing by Russia of the Non-Intervention Agreement?

Lieut.-Commander Fletcher: asked the Secretary of State for Foreign Affairs whether he will instruct the British Ambassador in Rome to ask for an elucidation of the public statement by the head of the Italian Government that Italy has not been neutral in Spain but has fought and that victory will be hers, observing that this utterance appears to be inconsistent with Italy's participation in the work of the Non-Intervention Committee?

Mr. Eden: His Majesty's Government are not aware of any official statement that such is the attitude of the Italian Government upon which formal representations could be based.

Lieut.-Commander Fletcher: Has not the right hon. Gentleman's attention been called to this public utterance?

Mr. Eden: As far as I am aware, there is no official statement on which I can make representations.

Mr. Arthur Henderson: Does not Signor Mussolini speak as head of the Italian Government?

Miss Wilkinson: When has a statement to be issued, and in what form, to induce the Foreign Secretary to take any notice of it if he does not want to?

Mr. Eden: The hon. Lady will perhaps agree, that, if intervention was confined to newspaper articles, we should get on much better than we do.

Commander Bower: Will my right hon. Friend instruct the British Ambassador in Rome to inform the Italian Government that public opinion in this country is in no way represented by the hostile antics of the Opposition?

Lieut.-Commander Fletcher: asked the Secretary of State for Foreign Affairs whether he has any information to give


the House concerning the note presented by the Portuguese Ambassador on 26th June?

Mr. Wedgwood Benn: asked the Secretary of State for Foreign Affairs whether the control scheme is operating effectively in Portugal; and whether the Portuguese Government is giving the agreed facilities to the duly appointed observers?

Mr. Eden: The Portuguese Government have informed His Majesty's Government that, in view of the gap in the work of naval observation caused by the withdrawal of Germany and Italy from the naval patrol, they must reserve the right to withdraw from the scheme of observation at sea in the event of the continuance of the present circumstances, and that they have decided to suspend for the time being the facilities granted to His Majesty's Embassy at Lisbon for the purpose of carrying out the scheme of observation on the Portuguese-Spanish frontier. Pending the consideration of the working of the naval patrol by the Non-Intervention Committee, however, the Portuguese Government will continue to observe their engagements in regard to the export of arms from, or in transit through, Portugal to Spain and in regard to Portuguese merchant ships proceeding to Spanish ports. The necessary decrees to give effect to these engagements remain in force. His Majesty's Government have made it clear to the Portuguese Government that they regret the decision, and, in reply, have been given to understand that, if general assent is obtained in principle in the Non-Intervention Committee for a plan for the re-establishment of maritime control, the Portuguese Government will consider the prompt resumption of their duties by the observers. In the meantime, the latter remain at their posts along the frontier, and would be able to resume their duties at the shortest notice.

Mr. Benn: What is the precise purpose of depriving these observers of the right to perform their duties if the Portuguese Government asserts that it intends to prevent the passage of arms?

Mr. Eden: That is why I regret this decision. I think myself it would have been better if the observers had continued to function until we know, as we must in the next day or two, whether this gap will be closed or not.

Mr. Benn: That is not exactly the question I asked. What grounds did the Portuguese Government give for forbidding the observers to function?

Mr. Eden: The ground they gave was the gap in the scheme.

Mr. Mander: Are the observers to remain on the spot in the meantime?

Mr. Eden: I understand that is so.

Mr. Henderson: Does the assurance of the Portuguese Government include volunteers?

Mr. Eden: Yes, Sir.

Lieut.-Commander Fletcher: Is not this step by the Portuguese Government quite unjustifiable, and only dictated by a desire to frustrate the work of the Committee?

Mr. Noel-Baker: asked the Secretary of State for Foreign Affairs whether the Governments of Germany and Italy have yet agreed to the scheme for the evacuation of foreign troops from Spain prepared by the Non-Intervention Committee?

Mr. Eden: I would refer the hon. Member to the answer which I gave him on 21st June. I understand that the Non-Intervention Committee had under consideration yesterday the report of the technical Sub-Committee and the additional proposals which His Majesty's Government had themselves made on this subject, and that a further suggestion was put forward by the French representative with a view to the immediate withdrawal of all non-Spanish prisoners of war or wounded. These proposals are still under consideration and will be on the agenda for the Committee's next meeting on Friday.

Mr. Mander: Is it not perfectly clear that the Germans and Italians are determined that the non-intervention scheme shall not work?

Mr. Thorne: They have said so.

Lieut.-Commander Fletcher: asked the Secretary of State for Foreign Affairs if Germany and Italy remain associated with that part of the commission of control scheme which provides for international observers on board merchant vessels and at the Spanish frontiers?

Mr. Eden: As the House is aware, all observing officers of German and Italian


nationality have withdrawn from service under the scheme. I understand, however, that German and Italian ships are continuing to comply with the procedure laid down under the scheme of observation of the Spanish coasts.

Mr. Benn: asked the Secretary of State for Foreign Affairs whether he has information concerning the reported sinking by torpedo of the Spanish merchant ship "Cabo Palos"; and whether, according to his information, the insurgent forces are in possession of any submarines?

Mr. Eden: From such information as is at present available it is not possible to establish definitely whether the vessel in question was sunk by a torpedo or by a mine, I understand that General Franco's forces possess some submarines.

Mr. Benn: Has the right hon. Gentleman noticed the statement by the Diplomatic Correspondent of the "Times" on the 23rd instant that General Franco has no submarines:?

Mr. Eden: Our information is that he has some submarines.

Mr. De la Bère: Is not the right. hon. Gentleman aware that somewhere a voice is calling "Britannia rules the waves: get rid of the Spanish obsession before we are all in our graves"?

Mr. Noel-Baker: asked the First Lord of the Admiralty how many ships flying the British, Spanish, or other flags and engaged on evacuating refugees from Santander have received the protection of His Majesty's ships?

The First Lord of the Admiralty (Mr. Duff Cooper): The only ship evacuating refugees from Santander to receive British naval protection has been the British steamship "Marian Moller."

Mr. A. Henderson: (by Private Notice) asked the Secretary of State for Foreign Affairs whether he is now in a position to make a statement as to the steps which have been taken to mainatin the effectiveness of the naval control off the coast of Spain following the withdrawal of the German and Italian Governments?

Mr. Eden: The position in regard to the scheme of observation at sea was considered yesterday by the Chairman's Sub-

committee of the Non-Intervention Committee. As the House is no doubt already aware from the communiqué which was published after the meeting, the United Kingdom representative outlined certain proposals for reconstituting the Naval Observation Scheme, which the United Kingdom and French Governments had agreed to submit to the committee. Under these proposals the United Kingdom and French Governments are prepared to assume responsibility for the operation of the naval observation scheme in respect of the whole of the coasts of Spain, and have agreed in principle to the appointment of neutral observers to be stationed on the patrol ships. The two Governments are agreed that the United Kingdom Government should be responsible for the naval observation of those parts of the coast of Spain now in the hands of the Spanish Government, and that the two Governments should share responsibility for the observation of those parts of the coast now in the hands of General Franco on a basis to be arranged between the two Governments. By far the greater part of the last named coasts would inevitably require to be included in the French zone.
In the course of a general exchange of views, the German and Italian representatives, while declaring their willingness to transmit these proposals to their respective Governments, pointed out their strong objections in principle against any proposal which was not based upon the necessary equilibrium to ensure absolute impartiality of control. The other representatives also undertook to submit the proposals to their respective Governments, and the matter will be considered again at a further meeting which is to be held on Friday.

Mr. Henderson: Did either the German or Italian Government put forward alternative proposals to those put forward by His Majesty's Government?

Mr. Eden: No, Sir, but I understand that they have been asked to do so.

Mr. Attlee: (by Private Notice) asked the Secretary of State for Foreign Affairs whether he can now make any further statement with regard to the evacuation of refugees from Santander?

Mr. Eden: Since the reply which I gave on this subject to a question asked by the


right hon. Gentleman yesterday, I have been in repeated communication with the French Government with regard to the reception of further refugees in France and the setting up of the necessary measures of control, and have represented to them the urgent nature of the problem. I have again been in communication with the French Ambassador this morning, and I understand from him that the French Government have this question under most urgent consideration and hope to be able to transmit proposals to His ' Majesty's Government this afternoon.

Oral Answers to Questions — GERMAN FOREIGN MINISTER.

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs whether any date has been fixed for the postponed visit to London by the German Foreign Secretary?

Mr. Eden: No, Sir.

Mr. Henderson: Is the House to understand that the visit is cancelled or merely postponed?

Mr. Eden: I think the German Government said at the time that it was postponed.

Mr. Gallacher: Is the right hon. Gentleman aware that the German Press stated—

Mr. Speaker: The right hon. Gentleman is not responsible for the German Press.

Oral Answers to Questions — LONDON NAVAL TREATY.

Mr. A. Henderson: asked the Secretary of State for Foreign Affairs whether it is the intention of His Majesty's Government to lay proposals before Parliament for the ratification of the London Naval Treaty?

Mr. Eden: Ratification has been delayed pending the conclusion of the naval negotiations which have been proceeding with Germany and Soviet Russia. It is, however, the hope of His Majesty's Government that it may be possible to proceed with the ratification of the London Naval Treaty at an early date.

Mr. Henderson: Has this Treaty been ratified by any other Government?

Mr. Eden: The United States.

Oral Answers to Questions — ROYAL NAVY (OIL FUEL).

Mr. Mathers: asked the First Lord of the Admiralty the quantities of oil and motor spirit produced from Scottish shale used by the vessels of His Majesty's Navy during the years 1934, 1935, and 1936, respectively; and whether it is his policy to extend the use of this home product?

Mr. Cooper: Roughly 50,000 gallons of light products derived from Scottish shale were purchased in each of the three years mentioned by the' hon. Member for use by the Royal Navy. The exact quantity cannot be ascertained because one of these products—namely, petroleum spirit—is refined from both shale oil and imported petroleum in unknown proportions. It is the policy of the Admiralty to extend the use of home products, but the possibility of increasing the purchases from the Scottish shale industry is limited by the fact that owing to the better prices obtainable for other products, the industry is not now making any fuel oil.

Mr. Mathers: Does the First Lord realise that the answer he has given involves a correction of a statement he made in reply to a question a few days ago where he did not indicate that any oil for the Navy came from Scottish shale deposits?

Oral Answers to Questions — KENYA.

OIL EXPLORATION.

Mr. Creech Jones: asked the Secretary of State for the Colonies the conditions of the licence recently issued to certain oil prospecting companies in Kenya; and whether it is the intention of such companies to engage in prospecting without further delay?

The Secretary of State for the Colonies (Mr. Ormsby-Gore): An exclusive oil exploration licence has been issued by the Government of Kenya to the D'Arcy Exploration Company, Limited, and the Anglo-Saxon Petroleum Company, Limited, jointly, over areas in Kenya totalling about 115,000 square miles. The licence, which is only concerned with the preliminary exploration of the area, is for a period of two years ending in February, 1939, and is subject to the provisions of the Kenya Oil Production Ordinance and Regulations as to the prosecution of geological and geophysical research and reporting all the results of


the exploration to the Government. It conveys no surface rights whatever, save such as are absolutely necessary for making a geological examination, and it conveys no rights to win oil or other minerals. The licensees' survey party arrived in Kenya early this year and is understood to have commenced operations under the exploration licence.

Mr. Jones: Can the Minister say whether, in the event of oil being discovered, it will be a condition that a substantial contribution will be made to a native welfare fund?

Mr. Ormsby-Gore: I think that we have first to find out whether there is any oil in Kenya at all That remains to be done. These two companies are exploring, and also the technical bodies of the two great oil companies, the Anglo-Iranian and the Anglo-Saxon, and until we get a report on the possibilities of oil, I should not like to prejudge anything that might follow.

Mr. Riley: Are the expenses of the explorers borne by the licensees entirely, and not by the Government?

Mr. Ormsby-Gore: Yes, Sir.

SOIL EROSION.

Mr. Mathers: asked the Secretary of State for the Colonies whether he can yet report on the commission on soil erosion in Kenya Colony; and whether this commission is empowered to make recommendations involving expenditure of public money?

Mr. Ormsby-Gore: So far as I am aware, no such commission has been appointed. The question of soil erosion in Kenya has, however, recently been reviewed by the Standing Board of Economic Development and is under consideration by the Kenya Government. I have recently approved the appointment of a special officer to study the problem of soil erosion for the whole of Kenya, and I can assure the hon. Member that this question is and has been engaging the most serious attention. Any practical suggestions for dealing with the problem must, I fear, involve the expenditure of considerable sums of money, and the financial problem will require careful consideration

Oral Answers to Questions — SOUTH AFRICAN MINES (NATIVE RECRUITMENT).

Mr. Creech Jones: asked the Secretary of State for the Colonies the conditions governing the licences issued in respect to recruitment for the mines in the Union of South Africa so far as such licences relate to Africans recruited from territories north of latitude 22× S.?

Mr. Ormsby-Gore: No licence has yet been issued for recruitment in Northern Rhodesia, but about 1,300 Barotse natives have been allowed as an experiment to proceed to a recruiting station established just outside the Northern Rhodesia border, and to be engaged for work on the Rand under the usual twelve months contract of the Witwatersrand Native Labour Association. In Nyasaland, as I have stated in reply to previous questions, the London and Blantyre Company were granted a licence in September, 1935, under Section 25 of the Nyasaland Employment of Natives Ordinance to recruit up to 2,000 Nyasaland natives (later raised to 4,000) for work on the Rand. They undertook to enter into contracts with such natives whereby the interests of the natives are fully safeguarded in such matters as food, clothing and transport on the journey, payment of hut tax, deferred pay (if the natives agreed) and return to Nyasaland at the end of the term of engagement. A full report on the results of this experiment up to February, 1937, will be published shortly.

Mr. Jones: Will the Minister be good enough to let me have particulars of the conditions governing this employment and will he also make representations to the Government of South Africa that future supplies of labour should be conditioned by the application of the Native Recruitment Convention?

Mr. Ormsby-Gore: I replied the other day to a question on that very point, that I had made representations to the High Commissioner for the Union of South Africa here and to the Government of South Africa that the question of payment for the transport to and from Nyasaland is a very important one.

Mr. Paling: In view of the fact that some years ago when natives from tropical areas were engaged at these


mines the death rate was very high, has the Colonial Secretary any reason to think that the situation has now changed and that the natives will not be subject to such a high death rate?

Mr. Ormsby-Gore: Yes, Sir, there is every reason for that. We have a great deal of new data, and the conditions obtaining now do not warrant that assumption. I dealt with that matter in the Debate the other day.

Mr. Paling: Has the right hon. Gentleman received any report on this matter up to the present, and, if so, can it be made public?

Mr. Ormsby-Gore: I have just said that it is about to be made public.

Oral Answers to Questions — UGANDA (JUVENILE OFFENDERS).

Mr. Day: asked the Secretary of State for the Colonies particulars of the number of prisoners that can be accommodated in the juvenile section of the new central gaol at Luzira, Uganda; and what reports have been received on the modified form of Borstal training that was introduced in Kenya?

Mr. Ormsby-Gore: The admissions of juvenile offenders and vagrants to Luzira Central Gaol during the years 1933–35 averaged 50 per annum. I understand that more extensive accommodation than is at present available is required. The whole question of the treatment of juvenile offenders is, however, under new consideration as a result of the recommendations made by a committee appointed by the Governor of Uganda to inquire into the prison policy and organisation in Uganda. In that report is is recommended that an approved school on Borstal lines should be established for juvenile offenders, with accommodation for 75 in the first instance. A report of the establishment of approved schools in Kenya in which some of the more outstanding methods of the Borstal system have been introduced is contained in the annual report of the Prisons Department of the Colony for the year 1935. I am arranging for a copy of the report to be placed in the Library of the House.

Mr. Day: Can the Minister say whether separate sections have been set up for juvenile male and female offenders?

Mr. Ormsby-Gore: Not without notice.

Mr. J. J. Davidson: Is the purpose of the report to ease juvenile crime in this particular area, and, if so, will the right hon. Gentleman send a copy of it to the superintendent of the Maryhill Division of Glasgow?

Oral Answers to Questions — PALESTINE.

GOVERNMENT POLICY.

Mr. Mander: asked the Secretary of State for the Colonies whether it is proposed to consult the Government of the United States of America with regard to the future policy to be pursued in Palestine, in view of the treaty of 3rd December, 1924, between Great Britain and the United States by which the latter became a party to the agreement to establish Palestine as the Jewish homeland, and which included a provision in the first article that any modification in the mandate must be assented to by the United States?

Mr. Ormsby-Gore: In considering the future policy to be pursued in Palestine, His Majesty's Government will, of course, keep prominently in mind any rights of the Government of the United States of America under the instrument to which the hon. Member refers.

Mr. Mander: Have any representations been received from the Government of the United States of America up to date?

Mr. Ormsby-Gore: No, Sir. ROYAL COMMISSION'S REPORT.

ROYAL COMMISSION'S REPORT.

Mr. Mander: asked the Secretary of State for the Colonies when it is proposed to publish the Report of the Royal Commission on Palestine and to make a declaration of the Government's policy in connection therewith?

Mr. Ormsby-Gore: It is proposed to release the report in time for its publication with a Command Paper containing a short statement of the policy of His Majesty's Government on the morning of 8th July, and copies of the report and a summary will be available for hon. Members in the Vote Office some time on Wednesday evening.

CITRUS FRUIT (BROADCAST PUBLICITY).

Mr. Storey: asked the Secretary of State for the Colonies whether the Crown Agents for the Colonies have taken any


action on behalf of the Palestine Government to advertise Jaffa citrus fruit by broadcasting through Luxembourg to the British Isles?

Mr. Ormsby-Gore: The Crown Agents for the Colonies, at the direct request of the Palestine Department of Agriculture, recently obtained from advertising agents in this country particulars of the terms on which broadcast publicity could be obtained for Palestine citrus fruit. The question of the best method of advertising is under consideration.

Mr. Storey: Does the right hon. Gentleman think it is any use His Majesty's Government making representations about the use of an unauthorised wave length at Luxembourg and the broadcasting of English advertisements from there, when his Department is calling for tenders for advertising from there?

Mr. Ormsby-Gore: I have not called for any tenders.

Mr. Storey: The Crown Agents, I understand, have called for tenders. Is it any use of the Government making representations about the broadcasting of English advertisements from Luxembourg when the Crown Agents are asking for tenders for advertising there?

Mr. Ede: Are we to understand that these are waves which Britannia does not rule?

Oral Answers to Questions — CYPRUS (BROADCASTING STATION).

Mr. Mander: asked the Secretary of State for the Colonies whether he will consider the advisability of establishing a wireless station at Cyprus to broadcast in the languages of Africa and the Middle East statements of fact with regard to the actions and policy of Great Britain?

Mr. Ormsby-Gore: I would refer my hon. Friend to my reply to the hon. Member for Penryn and Falmouth (Mr. Petherick) on 16th March, to which I have nothing to add.

Mr. Mender: Is it not very important that tendentious propaganda should be effectively answered in the interests of this country?

Mr. Ormsby-Gore: I am not as expert on propaganda as the hon. Member, but I am not at all sure whether the methods adopted by some of the other broadcasting stations are very advisable to follow.

Mr. George Griffiths: Is it not a fact that we cannot have a wireless station there without asking Hitler and Mussolini for their consent?

Mr. Ormsby-Gore: Oh, no. At present we have a Government wireless station there.

Oral Answers to Questions — AVIATION (NIGHT FLYING OVER CITIES).

Mr. R. Acland: asked the Under-Secretary of State for Air whether, in view of the inability to identify the aeroplane which flew over London on the morning of Friday, 18th June, and the consequent uncertainty whether it was or was not a foreign machine, he will make regulations prohibiting the flying of aeroplanes, other than those of the Royal Air Force, over cities after 10 p.m. or after some other hour; and, in order to enforce such regulations, will he consider the advisability of consulting with the Home Secretary regarding the provision of facilities for the police for using aeroplanes?

The Under-Secretary of State for Air (Lieut.-Colonel Muirhead): My Noble Friend is advised that he has no legal power to make such regulations as the hon. Member suggests. The second part of the question does not, therefore, arise. My Noble Friend is, however, glad that publicity has been given to this matter and he is arranging for the attention of civil pilots to be drawn to the undesirability of indulging in unnecessary private flying over cities at a late hour.

Mr. Acland: Would it not be advisable to take legal powers, and would it not be a great advantage if the flying squad could actually fly?

Lieut.-Colonel Muirhead: The question of whether the flying squad should fly or not is a matter for the Home Secretary. With regard to the taking of legal power, probably there is general agreement that one does not want to have legislation involving restrictions unless the case is absolutely proved. Up to now the complaints have not been sufficient to justify that.

Mr. Crossley: Have the Air Ministry any power to restrict the flying of aeroplanes advertising trade products?

Lieut.-Colonel Muirhead: As far as I am aware there is no difference in the case of such aeroplanes as compared with any other.

Major Colfox: Is the Minister aware that it is a very frequent practice for aeroplanes to fly over London at night, and that there was flying going on last night between midnight and 1 a.m.?

Lieut.-Colonel Muirhead: Like the hon. and gallant Member, I was also up between those hours, and heard it.

Oral Answers to Questions — ROYAL AIR FORCE.

ACCIDENTS, MANSTON.

Mr. Thurtle: asked the Under-Secretary of State for Air how many crashes have taken place in recent weeks in connection with the special instructional course at Manston in the handling of the Anson bombing aeroplanes; whether he is aware that an observer on one of the planes was recently struck by lightning, and that after landing following this occurrence the pilot in question was sent up immediately to practise landing and subsequently crashed; and whether he is satisfied that the pilots in this course are not being subjected to undue stress and strain?

Lieut.-Colonel Muirhead: With regard to the first part of the question, there have been four such accidents since 1st April, 1937, but only one resulted in serious damage or casualty. With regard to the second part, there is no record of any accident corresponding with that described by the hon. Member, and perhaps he will let me have further particulars of the case he has in mind. With regard to the third part, I have no reason to believe that pilots engaged in connection with this course are being subjected to undue stress and strain.

Mr. Thurtle: Is the Minister aware that this accident took place within the last fortnight, that the pilot lost his life and that he was sent up flying at night without an observation officer? Is that not both unusual and undesirable?

Lieut.-Colonel Muirhead: I am aware that there was an accident in the neighbourhood of this station to a sergeant,

who was killed in carrying out elementary night flying, but I do not associate that case with the description of the accident given in the question.

Captain Harold Balfour: Is the Under-Secretary aware that at Manston station, which is in the Isle of Thanet Division, the flying personnel are well looked after, and that there are no grounds for the inferences contained in the question?

Lieut.-Colonel Muirhead: I believe that to be true.

Mr. Thurtle: Is the Under-Secretary aware that I am not seeking to achieve any debating point. I am only anxious that he should satisfy himself that the lives of brave men are not being risked unnecessarily?

Lieut.-Colonel Muirhead: I appreciate the hon. Member's motives, and I am only anxious to find out the exact accident to which he refers, but I cannot, from the description given in the question, actually identify the particular accident.

FOREIGN OFFICERS (TRAINING).

Mr. Day: asked the Under-Secretary of State for Air particulars of the number of foreign officers who have received instruction with the Royal Air Force for the three years ended to the last convenient date; and the fees charged to these officers in respect of their training?

Lieut.-Colonel Muirhead: During the period of three years ending on 31st March last, 48 foreign officers have received flying instruction and 12 officers have received ground instruction at Air Force establishments. The fees charged, which vary according to the instruction given, amounted in all to £18,630.

Mr. Day: Can the Under-Secretary say whether the officers of our Air Force have the same reciprocal opportunities?

Lieut.-Colonel Muirhead: There is a great deal of international courtesy on this matter.

Mr. Mander: Can the Under-Secretary give the nationality of these officers?

Lieut.-Colonel Muirhead: Perhaps the hon. Member will put that question down.

BRITISH-DESIGNED AIRCRAFT (FOREIGN MANUFACTURE).

Mr. Garro Jones: asked the Under-Secretary of State for Air whether he will


name the type of aircraft which is being manufactured in Belgium by the firm Avions Fairey; and what type, and horsepower, of engine has been exported from this country under open general licence to drive the same?

Lieut.-Colonel Muirhead: To my knowledge the only aircraft of British design being manufactured by Avions Fairey in Belgium is the Fairey Fox bomber. It is fitted with the Rolls Royce Kestrel II. S. (505 horse-power) engine. A Fantome fighter has been designed and is being manufactured by the Belgian company, and one of these machines is being purchased by the British Government. It is fitted with a French engine.

Mr. Garro Jones: Is there any control over the destination of the output of this factory to other countries?

Lieut.-Colonel Muirhead: There is no reason to believe that this factory would wish to operate against the interests of the British Government. There are commercial conditions which one arranges with a firm, as in this case. It may perhaps satisfy the hon. Member and the House if they realise that, as a fact, permission is not granted by the Air Ministry for the export of designs for manufacture in other countries in cases where we have any vital objections to these designs or the products of these designs being passed on to other countries.

Mr. Garro Jones: Would it not be well to make some specific restriction on the destination of the output of this factory?

Lieut.-Colonel Muirhead: As I have said, we entered into conditions with the Fairey factory when we gave permission for these designs to be manufactured in the Belgian factory, and there is no reason to believe that these conditions are not honourably fulfilled by the factory in question. I only gave the additional information for the benefit of the hon. Member and the House, to show that we have a second line of security.

Commander Bower: Is it not the case that this type of aircraft was actually put into service in this country in the year 1927, and is therefore completely obsolete?

Lieut.-Colonel Muirhead: It is not a type of aircraft to which we attach any importance.

Mr. Garro Jones: asked the Under-Secretary of State for Air how many and which manufacturing companies on the Air Ministry approved list are supplying modern designs of aircraft to foreign countries through the medium of subsidiary or associated companies operating abroad; and what control is exercised by the Air Ministry over the transfer of designs and other information to such subsidiary companies and over the destination of their output, respectively?

Lieut.-Colonel Muirhead: In reply to the first part of the question, to my knowledge the only case is that of the Fairey Aviation Company with whom the Belgian company Avions Fairey is associated. As regards the second part, the consent of the Air Ministry has to be obtained before the transfer abroad of designs or information in respect of military aircraft in which the Air Minister is interested. As regards the last part, no formal control is exercised, but the relations of the Air Ministry and the parent firm are such as to ensure in practice that its foreign subsidiary does not act in a manner opposed to the policy of His Majesty's Government.

CONTRACTS.

Mr. Garro Jones: asked the Under-Secretary of State for Air the total amount of Air Ministry contracts executed, and in process of execution, for which no final price has yet been fixed; and whether, having regard to the rise in prices that has occurred since these contracts were entered in the Air Ministry accounts at a provisional price, he can form any estimate of the total amount of Supplementary Estimate or Excess Votes that will be required to make good the discrepancy?

Lieut.-Colonel Muirhead: With, regard to the first part of the question, as no final prices in these cases have been fixed it is not possible to state the total amount. With regard to the second part, I have no cause at present to suppose that any Supplementary Estimate or Excess Vote will be required for the reason stated by the hon. Member.

Mr. Garro Jones: Seeing that these prices were entered in the Air Ministry's accounts on a conservative basis, and that since then there has been a large and known increase in prices, will not this in some way upset the accounts and absorb


the margin of the conservative estimate? Is it not possible that this will amount to £2,000,000 or £3,000,000, and will demand some re-estimate by the Air Ministry?

Lieut.-Colonel Muirhead: I think the hon. Member is confusing the fixing of provisional prices and the making of the Air Ministry's Estimates. When the Air Ministry makes its Estimates it has a general idea, of course, in mind, and the Estimates of the ensuing year are made with the possibility of a rise in prices in mind. That is the basis on which the Air Estimates are made. With regard to the fixing of provisional prices, that is of course a detail to be arranged in particular cases, but in a good many cases of instruction to proceed no provisional price has, in fact, been made.

Mr. H. G. Williams: Will the hon. and gallant Member continue to arrange these Estimates on a conservative rather than on a Socialist basis, as the Socialist party always spend more than they intend to?

Mr. Noel-Baker: Can the Under-Secretary tell us the total amount of the provisional prices which have been fixed?

Lieut.-Colonel Muirhead: Not without notice, but I would draw the hon. Member's attention to the fact that there are quite a number of cases in which no provisional price is fixed.

Mr. Benn: Do we understand that the Ministry frames its Estimates so loosely that an increase of prices is still provided for in the excess amount for which they asked?

Lieut.-Colonel Muirhead: We do not frame our Estimates loosely. In framing our Estimates we estimate not merely on the basis of prices which exist at the particular moment, but we take into consideration the possibility of the trend of prices and materials during the year for which the Estimates are made.

INSTRUCTIONAL MACHINES.

Captain Balfour: asked the Under. Secretary of State for Air at what stations Tutor-type aircraft are being used for dual and solo instructional flying; and the total number so employed?

Lieut.-Colonel Muirhead: With the permission of my hon. and gallant Friend I will circulate in the OFFICIAL REPORT a list of the stations at which these instructional machines are being used.

Following is the list:


Location.

Number of Tutors.


Cranwell
…
22


Upavon
…
23


Manston
…
3


Filton
…
3


Aldergrove
…
3


Waddington
…
3


Hucknall
…
3


Hendon
…
9


Abbotsinch
…
3


Turnhouse
…
3


Castle Bromwich
…
3


Usworth
…
3


Thornaby
…
3


Yeadon
…
3


Hooton Park
…
3


Speke
…
3


Aberdeen
…
3


Cardiff
…
3


Kenley
…
3


Abingdon
…
8


Duxford
…
8


Northolt
…
4


Singapore
…
1


Grantham
…
4


Hullavington
…
4


Wittering
…
4


Gosport
…
3


27

138

Captain Balfour: asked the Under-Secretary of State for Air what restrictions and speed in manoeuvre are imposed on the Tutor-type aircraft used for training purposes?

Lieut.-Colonel Muirhead: The Tutor is restricted to a speed of 120 miles per hour. There are no manoeuvre restrictions within this speed, except to avoid hard use of the aileron control.

Captain Balfour: Is the Under-Secretary satisfied that this machine cannot be made to go more than 120 miles an hour by a not very skilful pupil; and is he satisfied that there is no undue risk being run by continuing the use of these Tutor machines for instructional purposes?

Lieut.-Colonel Muirhead: It is possible if the machine inadvertently gets into a dive that it will travel at more than 120 miles an hour, but, even so, provided there is sufficient height, it is possible for the machine to be got out of the dive by the gentle use of the controls. With regard to the last part of the hon. and gallant Gentleman's question, I may say that


modified wings are being supplied in this type of machine at the rate of 10 a week. When that has been done it will be possible to remove the flying restrictions. The hon. Member will also wish to know that the Tutor type of machines is in due course being replaced by another type.

EMPIRE AIR DAY (ACCIDENTS).

Mr. Noel-Baker: asked the Under-Secretary of State for Air how many members of the Royal Air Force have lost their lives in accidents occuring in displays on Empire Air Day; and by whom these displays are organised and arranged?

Lieut.-Colonel Muirhead: As stated to my hon. and gallant Friend the Member for Thanet (Captain Balfour) on 2nd June last, six deaths are recorded as having taken place during the four years since Empire Air Day was initiated. The displays are organised and arranged by the Royal Air Force with the assistance of the Air League of the British Empire.

Oral Answers to Questions — TRANSPORT.

TRAFFIC LIGHTS.

Sir N. Grattan-Doyle: asked the Minister of Transport whether he is yet in a position to announce his decision on the report of the inquiry into the period of showing of the amber traffic-light; and whether such change will be made so that the period of showing will vary only according to the class of road and the nature of the traffic thereon?

Mr. McGhee: asked the Minister of Transport whether his Department have considered the complaints made as to the wide variation in the length of time of the amber caution signal at cross-roads; and whether it is his intention to fix a minimum time to avoid the dangerous practice of sudden braking at these points?

The Minister of Transport (Mr. Burgin): In modern installations of traffic lights I am advised that it is possible to standardise the amber period under all conditions of traffic. As I stated on 1st June in reply to a question by my hon. Friend the Member for the South-Western Division of St. Pancras (Sir G. C. Mitcheson), I hope shortly to issue a circular to highway authorities on this subject. I will send the hon. Members copies.

LONDON UNDERGROUND RAILWAYS (PASSENGER ACCOMMODATION).

Sir Percy Harris: asked the Minister of Transport whether, in view of the crowded conditions of underground trains in London during rush hours, he will make representations to the London Passenger Transport Board to remove the distinction between first and third-class compartments during those periods?

Mr. Burgin: The underground lines of the London Passenger Transport Board are operated on the one class only system, with the exception of the Metropolitan and District lines. I am informed by the board that it is not practicable for them to abolish the distinction between first and third-class accommodation on the Metropolitan and District lines during the peak hours, whilst retaining it at other times. The board further state that they review annually the position with regard to first-class traffic with a view to satisfying themselves whether a continuance of the distinction is warranted, and that hitherto the volume of that traffic has been such that the board have not felt justified in making a general withdrawal of the distinction.

Sir P. Harris: If the board cannot consider taking away what is an unnecessary distinction, will they consider increasing the accommodation by lengthening the trains or increasing the number of trains because the congestion is a scandal?

Mr. Lansbury: Is the right hon. Gentleman aware that on Monday last the authorities of the London Passenger Transport Board informed a deputation from the East End that they intended to abolish first-class compartments, that is, to make them available for everybody during rush hours in the near future?

Mr. Burgin: I will certainly look into the matter again. The House will appreciate that it is not a matter for me but for the London Passenger Transport Board, but I will take into account the observations that have been made and inform myself again on the subject.

Vice-Admiral Taylor: Will hon. Members who want this class distinction removed receive only third-class tickets?

TRAM COLLISION, SHOREDITCH.

Mr. Thurtle: asked the Minister of Transport whether he can give any information regarding the circumstances of


the collision which took place in Old Street, Shoreditch, on the 22nd instant, between two tramway cars, resulting in the injury of a large number of passengers?

Mr. Burgin: I am informed by the London Passenger Transport Board that on 22nd June at 8.15 a.m. a tram proceeding along Old Street in the direction of Bloomsbury stopped at Whitecross Street at the traffic signals and the tram following collided with it. Careful examination and test showed the colliding tram to have been in good working order.

Oral Answers to Questions — JUSTICES OF THE PEACE (ADVISORY COMMITTEE, DURHAM CITY).

Mr. Ritson: asked the Attorney-General when the last meeting of the Advisory Committee of Durham City magistrates was held; and whether the two last appointments to the Advisory Committee, one of whom was appointed in 1933, have attended any meetings?

The Attorney-General (Sir Donald Somervell): The Advisory Committee for the City of Durham has not been called together since 1932 because the number of Justices in the City of Durham is more than enough for the discharge of the magisterial duties. The two new members of this Committee who were appointed in January, 1933, and April, 1935, respectively, have, therefore, not been summoned to any meetings of the Advisory Committee.

Mr. Ritson: Is it not the usual thing that in arrangements between the parties there should be a balance, and as these two men who have been nominated by the Lord Chancellor are miners' representatives is it fair that the bench should want to keep itself to itself and should refuse to accept advice from these two people? Is the hon. and learned Gentleman aware that the same bench, or members of it, the other week were sufficient and strong- enough to give a man two months on his first appearance; and does he not think it is about time there was a new bench of magistrates?

The Attorney-General: In answer to the first part of the hon. Gentleman's supplementary question, I do not think he has quite understood the position. There has

not been anything for the Advisory Committee to do because there are more than sufficient magistrates for the area, and as there was not anything for the committee to do, it would have been a waste of the members' time if they had been called together.

Mr. Ritson: Does the hon. and learned Gentleman know that we object to cathedral and university opinion in the centre of a mining area?

Mr. Batey: Will the Attorney-General say who has authority, to call the Advisory Committee together, and who decides as to whether or not there is anything for the Advisory Committee to do?

The Attorney-General: I imagine it is the chairman.

Mr. Whiteley: Is the hon. and learned Gentleman aware that there is a big demand in Durham City at the present time, and has been for some years, for some lady magistrates, and that the Advisory Committee has not even been called upon to discuss that matter?

The Attorney-General: I was not aware of that.

Mr. Batey: May I ask who is the chairman?

Oral Answers to Questions — CARDIGANSHIRE ASSIZES (WELSH-SPEAKING WITNESSES).

Mr. Owen Evans: asked the Attorney-General whether he is aware that in a case tried at the last Cardiganshire Assizes, held at Lampeter, in which two defendants were convicted of conspiring to obtain money by false pretences, part of the evidence for the prosecution related to conversations carried on, and representations made, in Welsh, and that several of the witnesses, being Welsh-speaking, expressed their desire to give their evidence in Welsh; and whether he will inquire into the facts and consider what steps may be taken to see that Welsh-speaking witnesses are permitted to give their evidence in Welsh?

The Attorney-General: According to my information with regard to this case, it is inaccurate to suggest that Welsh-speaking witnesses were not permitted to give their evidence in Welsh. The last part of the question does not, therefore, arise.

Mr. Evans: Is it not a fact, according to what appeared in the Press, that they were not permitted to give their evidence in Welsh, although they requested to be allowed to do so, and is that in accordance with the policy laid down by the hon. and learned Gentleman in this House that Welsh-speaking witnesses should be allowed to give their evidence in their natural tongue?

The Attorney-General: There was some comment in the course of the trial, in the report which I saw, with regard to one witness, but it appeared that that witness had given his evidence in English in the police court, and the learned counsel when he called that witness expressed his respectful agreement with the line that the learned judge took with regard to that witness.

Mr. Evans: Does not the hon. and learned Gentleman realise that to give evidence-in-chief in the English language is a very different thing from being cross-examined in it, and is he not aware that the witness did ask to be allowed to give evidence in Welsh? I am asking the hon. and learned Gentleman whether what happened was in accordance with the practice which he explained to the House?

The Attorney-General: From such reports as I have seen, there is no ground for believing that an interpreter was refused. I have read such reports as have been available for my information, and I do not think anything that took place in that trial is a proper basis for suggesting that the learned judge was not fully alive to the considerations which the hon. Gentleman has put, or that he did not give witnesses every chance to give their evidence properly.

Oral Answers to Questions — WATER SUPPLY, LLANBEDROG, CARNARVONSHIRE.

Major Owen: asked the Minister of Health whether his attention has been drawn to the shortage of water in the village of Llanbedrog, Carnarvonshire, and the inconvenience and hardship caused to the inhabitants by the diversion of part of the water supply to the Penrhos aerodrome; and what steps it is proposed to take to remedy the present position?

The Parliamentary Secretary to the Ministry of Health (Mr. Bernays): My right hon. Friend is aware of the position. He has approved a scheme which will augment the Llanbedrog supply, and tenders are awaited for the execution of the necessary works.

Major Owen: How long will it be before work is commenced, as the matter is extremely urgent, seeing that the water supply has to be cut off for long hours every day and that the village depends upon visitors for its livelihood?

Mr. Bernays: My right hon. Friend appreciates the urgency, and is doing his best to expedite the matter. I understand that the only outstanding matters now are the receipt of tenders and the talk with the consulting engineer on 6th July, on the design of filters.

Oral Answers to Questions — DAY NURSERIES, LIVERPOOL.

Mr. Kirby: asked the Minister of Health whether the Liverpool Port, Sanitary and Hospitals Committee have notified him of their intention to close two municipal day nurseries; whether he is aware that such action would be widely deplored and might lead to the mothers of the children having to relinquish necessary wage-earning employment in order to care for their children at home; and, to avoid causing these mothers to seek public assistance, will he take steps to investigate fully any contemplated reduction in day-nursery accommodation in Liverpool?

Mr. Bernays: My right hon. Friend has not received any such notification from the city council. He will communicate with them and inform the hon. Member of the result.

Oral Answers to Questions — TELEPHONE EMERGENCY CALLS.

Mr. Keeling: asked the Postmaster-General whether he can now state how soon a telephone user will be able, in case of fire or other emergency, to indicate to the exchange, by dialling a special number, that the call is specially urgent?

The Assistant Postmaster-General (Sir Walter Womersley): I am glad to be able to inform the House that the necessary technical arrangements have now been completed so far as London is concerned,


and that if a subscriber or call office user dials "999," a special signal indicating that the call must receive immediate attention will be given to the exchange operator. The "999" call may be made free of charge from a call office: I would strongly emphasise that the number "999" should be dialled only when the fire brigade, police or ambulance is needed in circumstances of real emergency, otherwise the whole purpose of the arrangement may be defeated. It will, until further experience has been gained, be operative in London only. It relates to all automatic exchanges in London save those few in the case of which the telephones do not bear letters as well as figures on the dial.

Mr. Keeling: Can my hon. Friend also answer this: If a householder knows the actual number of the fire station, is it better to dial the fire station direct, or to dial "999"?

Sir W. Womersley: I have personally witnessed experiments with this particular signal call, and I should say that the person using the telephone would be wise to use the emergency number rather than the other number.

Major J. Herbert: How would a lady with a burglar in the house remember to dial "999"? Why not have some sort of button on the telephone which could be pressed?

Sir W. Womersley: Our engineers have tried every kind of device, and have come to the conclusion that this is the best method of getting a sure direct call.

Major Herbert: In the old days one had only to lift the telephone receiver and one got the exchange.

Mr. Garro Jones: What would happen if "999" were dialled—

Mr. Speaker: There are several more questions on the Paper.

Oral Answers to Questions — LUXEMBOURG RADIO (ENGLISH ADVERTISEMENTS).

Mr. Storey: asked the Postmaster-General whether any reply has yet been received to the representations made about the broadcasting of English advertisements and the use of a wave-length not allotted by international agreement by the Luxembourg broadcasting station?

Sir W. Womersley: Further representations have recently been made to the Luxembourg Government, whose reply is awaited.

Mr. Storey: Does the hon. Gentleman expect any further progress with these negotiations as long as the Crown Colonies place large orders for advertising with this station?

Sir W. Womersley: I cannot reply for the Colonial Office, but I can say that this is not a case of "Britannia Rules the Waves;" it is internationalism that is the trouble.

Mr. Cocks: Is the hon. Gentleman aware that any attempt to stop this broadcast from Luxembourg would be greatly resented by millions of listeners who prefer these programmes to the dull programmes of the B.B.C.?

Sir W. Womersley: Perhaps the hon. Gentleman will put that question on the Paper.

Oral Answers to Questions — EMPIRE SETTLEMENT (SCOTTISH FISHERMEN).

Mr. Leslie: asked the Secretary of State for Dominion Affairs whether he has received any report from the United Kingdom High Commissioner at Ottawa on the proposed scheme for transferring Scottish fishermen and their families to Vancouver?

The Under-Secretary of State for the Colonies (Marquess of Hartington): No, Sir. The High Commissioner has communicated the proposals to the Canadian authorities and is awaiting an expression of their views.

Mr. Leslie: Has the Noble Lord any idea as to when he is likely to get the report?

Marquess of Hartington: No, I cannot say.

Oral Answers to Questions — IRON AND STEEL INDUSTRY.

Mr. Smedley Crooke: asked the President of the Board of Trade whether his attention has been drawn to the considerable quantity of steel which is now being shipped to Germany from this country, including among other goods the rails from Dover's abandoned tramway system; and whether, in view of the


shortage of steel and the needs of home manufacturers, he will take the necessary steps to prevent the export of this raw material?

The Parliamentary Secretary to the Board of Trade (Captain Euan Wallace): I understand that two small shipments of the Dover tramway material have been made, but that it is hoped that the balance will be retained in this country. My hon. Friend will be aware of the arrangements recently made between the British Iron and Steel Federation and the National Federation of Iron and Steel Scrap Merchants for the purpose of conserving in this country any supplies of scrap suitable for home use. I might add that during the first five months of this year imports of scrap iron and steel have exceeded exports by nearly 70,000 tons.

Mr. Smedley Crooke: Is the right hon. and gallant Gentleman aware of the seriousness of the position at the present time with regard to the scarcity of steel?

Captain Wallace: Yes, I have already stated to the House that we are aware of the position.

Miss Wilkinson: Cannot the Government put an embargo on the export of steel from this country?

Mr. de Rothschild: Would it not be wise for the Government to reduce the tariff on imported steel?

Mr. Higgs: Is the right hon. and gallant Gentleman aware that works in Birmingham are at present on part time owing to the shortage of steel?

Captain Wallace: Perhaps the hon. Member will put that question on the Paper.

Mr. A. Henderson: asked the President of the Board of Trade whether he is aware that the present shortage of steel is causing concern to many manufacturers; and whether His Majesty's Government intend to take action in the matter?

Captain Wallace: The answer to the first part of the question is in the affirmative. As my right hon. Friend said yesterday in reply to the hon. and gallant Member for the Wrekin Division (Colonel Baldwin-Webb), the Import Duties Advisory Committee are actively considering

what steps can usefully be taken to increase imports of iron and steel.

Mr. Henderson: Is the right hon. and gallant Gentleman aware that, in the meantime, manufacturers in this country are unable to obtain supplies of steel from within our own country, and in consequence have to import from the United States and pay a duty of 33⅓per cent.?

Sir P. Harris: Will the Government take action of its own accord in this urgent matter, instead of taking shelter behind the Import Duties Advisory Committee?

Captain Wallace: It is not a question of taking shelter behind the Import Duties Advisory Committee. That Committee was set up for a specific duty, and I think if the hon. Baronet will exercise a little patience he will find that the Committee is discharging that duty.

Mr. Henderson: Will the right hon. and gallant Gentleman reply to my question?

Captain Wallace: I cannot remember what it was.

Mr. Henderson: Is the right hon. and gallant Gentleman aware that manufacturers in this country have to import American steel and pay 33⅓ per cent. duty on it?

Captain Wallace: It is because we are aware of that and because the Import Duties Advisory Committee is aware of it, that, as my right hon. Friend stated yesterday, active consideration is being given to what can be done in the matter.

Captain Strickland: Does the right hon. and gallant Gentleman deem it active consideration of the question when it has been before the committee since last Whitsuntide?

Captain Wallace: My hon. and gallant Friend had better wait a short time—I do not think it will be very long—in order to see what the result of this consideration will be.

Mr. Benn: Does this mean that the Government are not even to be allowed to reduce a duty until they have the permission of the Import Duties Advisory Committee?

Miss Wilkinson: Would it not be better for the Government to do something to increase the production of steel in this country?

Oral Answers to Questions — POLICE (TRADE UNIONS).

Mr. Leslie: asked the Secretary of State for the Home Department whether he is now in a position to make a statement regarding the information supplied by a Manchester detective officer concerning the activities of the National Amalgamated Union of Shop Assistants, Warehousemen and Clerks to the Lancashire and Cheshire District Committee of the Economic League; whether he is aware that the statement respecting a meeting of the Manchester branch of the union had no foundation in fact; and whether the police are now instructed to attend meetings of trade unions without invitation?

The Under-Secretary of State for the Home Department (Mr. Geoffrey Lloyd): My right hon. Friend is informed by the chief constable of Manchester that none of his officers has supplied any information to any member of the Economic League regarding the activities of the union referred to, that none of his officers attended the meeting referred to, and that none of his officers had any knowledge of any such meeting being held. The chief constable also states that meetings of trade unions are not in fact attended by members of the Manchester police force.

Mr. Leslie: I take it, then, that it is not within the province of the police to attend ordinary branch meetings of trade unions which are carrying on their normal and legal work?

Mr. Lloyd: I think my answer is specific on that point.

Oral Answers to Questions — NATIONAL DEFENCE CONTRIBUTION.

Major-General Sir Alfred Knox: asked the Chancellor of the Exchequer what additional staff was engaged at the Treasury to deal with the National Defence Contribution Tax in its original form; and to what sum their salaries amounted?

The Financial Secretary to the Treasury (Lieut.-Colonel Colville): No additional staff was engaged to deal with the National Defence Contribution in its original form.

Sir William Davison: asked the Chancellor of the Exchequer whether it is the intention of the Government to ex-

clude husbandry in the United Kingdom from the provisions of the National Defence Contribution; and, if so, what provision in the Finance Bill gives effect to this exclusion?

Lieut.-Colonel Colville: Where the actual profits of husbandry exceed £2,000 they will be chargeable to the National Defence Contribution in common with the profits of all other trades and businesses.

Sir W. Davison: Was not husbandry excluded from the Excess Profits Duty, and if it is intended that husbandry should be included in this new tax, is it also intended to include forestry?

Lieut.-Colonel Colville: If the hon. Member wishes an answer to the last part of the supplementary question, perhaps he will put a separate question on the Paper dealing with the point. As I have said, it is intended to include husbandry in the present tax, where the profits exceed £2,000.

Mr. H. G. Williams: Does that apply to the Schedule B assessment or the Schedule D assessment?

Mr. Turton: Is the Minister aware that agriculture is prepared to pay the National Defence Contribution if the Government carry out a successful agricultural policy?

Oral Answers to Questions — INCOME TAX (AUTHORS).

Sir W. Davison: asked the Chancellor of the Exchequer whether his attention has been called to the serious hardship suffered by authors who often take many years in the production of a book, at the end of which period the book is sold for a considerable sum of money, when they are assessed to Income Tax in respect of such lump-sum payment at the highest scale, notwithstanding the fact that during the years of production they have been without income; and whether, in these circumstances, provision will be made to enable the tax payable to be assessed on a spread-over basis covering the years of the production of the work?

Lieut.-Colonel Colville: I regret that I am unable to adopt my hon. Friend's suggestion, which would involve a departure in the case of fluctuating incomes of a particular profession from the general principles which govern the assessment of professional income.

Sir W. Davison: Is the Minister aware that an author in the circumstances stated in the question, often has to give up half the lump sum payment which he or she receives, although it may have taken five or six years to produce the work, and although during that time the author has had no income whatever from it?

Lieut.-Colonel Colville: I am aware that this is a question which has been considered from time to time, and that it has not been found possible to meet the case, without departing from the general principles governing Income Tax.

Sir W. Davison: Then the principle in this case is wrong?

Mr. Crossley: Is the right hon. and gallant Gentleman aware that books which take five or six years to produce usually have very small sales?

Oral Answers to Questions — UNEMPLOYMENT (SHOREDITCH).

Captain Balfour: asked the Minister of Labour the number of able-bodied unemployed in the Shoreditch area on 24th August, 1931, as compared with 24th August, 1936?

The Minister of Labour (Mr. Ernest Brown): At 17th August, 1931, there were 5,664 unemployed persons resident in the Metropolitan Borough of Shore-ditch, on the registers of Employment Exchanges; in August, 1936, the number was 2,762.

Captain Balfour: While I am not trying to score any political point, may I ask the Minister whether the publication of these figures will not give great satisfaction in Shoreditch; and whether it will not be agreed by many that the day in 1931 which saw the fall of the Labour Government, of which the hon. Member for Shoreditch (Mr. Thurtle) was a member, was really a happy day for the workers?

Mr. Brown: I have no doubt that the whole population of Shoreditch will find great comfort in these figures.

Mr. Davidson: Can the Minister of Labour also give the figures of Poor Law relief for this area?

Mr. Brown: Yes, if the hon. Member will put down a question.

Mr. Bellenger: May I ask whether it is in accordance with the traditions of this House, for hon. Members to seek to make propaganda in the form of questions?

Oral Answers to Questions — FRANCE (FINANCIAL SITUATION).

Mr. Attlee: (by Private Notice) asked the Chancellor of the Exchequer whether he can make any statement as to the monetary measures announced by the French Government yesterday?

The Chancellor of the Exchequer (Sir John Simon): In the French Chamber yesterday M. Chautemps' Government announced their intention of asking for drastic powers to deal with the financial situation, and I understand that the French Parliament is dealing with this demand to-day. The present position, therefore, is that the French Government are asking for such powers, but until they have both obtained them and decided on the action to take under them it is not possible to state the details of their plans. It is generally recognised that the readjustment of the franc in September, 1936, was not entirely successful in re-establishing a lasting equilibrium between the economic system of France and those of the United States and Great Britain such as is the underlying object of the Tripartite Agreement. I understand that the measures now contemplated by the French Government, which involve the removal of the upper and lower gold limits now prescribed for the franc, are addressed to adjusting this situation.
I have been assured, however, by the French Government that it is not their object to seek any exchange advantage from this adjustment and that they are anxious to continue close co-operation with the Governments of the United States and the United Kingdom. This is also the strong desire of His Majesty's Government, and I shall continue to be in close touch with the French Minister of Finance and the Secretary of the United States Treasury with this object in view.

Mr. Thorne: Does not the right hon. Gentleman think that the French Government are a bit too late, and that they ought to have taken steps earlier to prevent the money being spirited away?

Oral Answers to Questions — QUESTIONS TO MINISTERS.

Lieut.-Commander Fletcher: On a point of Order. Is not a question of which I have given private notice to be answered?

Mr. Speaker: I came to the conclusion that the hon. and gallant Member must put the question on the Order Paper.

MESSAGE FROM THE LORDS.

That they have agreed to,—

Widows', Orphans' and Old Age Contributory Pensions (Voluntary Contributors) Bill, without Amendment.

Amendments to—

Public Health (Drainage of Trade Premises) Bill [Lords], without Amendment.

MINISTERS OF THE CROWN BILL.

Ordered, "That the Lords Amendment be considered forthwith."—[Sir J. Simon.]

Lords Amendment considered accordingly.

CLAUSE 3.—(Additional salaries to Cabinet Ministers, who hold offices at salaries less than five thousand a year.)

Lords Amendment: In page 3, line 20, leave out "which," and insert "whom."

3.53 p.m.

The Chancellor of the Exchequer (Sir John Simon): I beg to move, "That this House doth agree with the Lords in the said Amendment."
The House, in examining the Bill, may have observed that in Clause 3, Subsection (1), the phrase "any Minister of the Crown to whom" is used, whereas in Sub-section (2) of Clause 3 the phrase employed is "any Minister of the Crown to which." "To whom" is more appropriate for a Minister of the Crown than "to which." I, therefore, move that we agree with the Lords Amendment.

Question, "That this House doth agree with the Lords in the said Amendment," put, and agreed to.

Orders of the Day — EXCHANGE EQUALISATION ACCOUNT BILL.

Order for Second Reading read.

3.54 p.m.

The Financial Secretary to the Treasury (Lieut.-Colonel Colville): I beg to move, "That the Bill be now read a Second."
If I move this Motion shortly, it is not indeed because the subject is unimportant, but because the ground was very fully covered in the Debate which took place on Monday on the Committee stage of the Financial Resolution. It was evident then that on all sides there was an acceptance of the necessity for strengthening the resources of the Exchange Equalisation Account. It is quite true that the Opposition moved an Amendment to reduce the amount to £150,000,000 instead of £200,000,000, but the right hon. Gentleman who moved the reduction was careful to explain that it was not because he disagreed with the general policy, but rather that he wished

that it should be kept under review. The Amendment was voted down, and the proposal of the Government that the increase should be £200,000,000 was accepted.
The House will also recollect that on the important subject of information my right hon. Friend the Chancellor of the Exchequer was able substantially to meet the desires of the Committee both in the matter of the publication of information at half-yearly periods and in the assurance which he gave that the Public Accounts Committee, that trusty watchdog of Parliament's financial affairs, would be able, not only to see statements relating to the Account, but to question Treasury witnesses on the Account. These assurances in the matter of information were accepted by the whole Committee as being generally satisfactory. There were one or two observations on the subject, but there was little doubt of the sense of the Committee generally on that matter.
For the Exchange Equalisation Account, I claim that in the past two years it has contributed in no small degree to the industrial recovery which has taken place in this county by helping to preserve our exchange from disconcerting fluctuations; for there is little doubt that had there not been some measure of control through the Exchange Equalisation Account, there would have been fluctuations that would have been damaging both to our home and to our export trade. Since the Resolution on which this Bill is founded was taken, only two days ago, the French Government have introduced into their Parliament proposals for full powers to deal with the financial situation of their country. The Chancellor of the Exchequer made a statement on this subject just now, and naturally there is nothing which I can usefully add to it. The House will see, however—and I think there will be very general agreement with this—that my right hon. Friend was very well justified in his statement on Monday that we are passing through difficult and disturbing times, and that there was a real and substantial occasion for fortifying our resources for dealing with the exchange situation.

Sir William Davison: Is it a fact, as stated in the Press, that the French exchange equalisation fund has all been spent?

Lieut.-Colonel Colville: I have nothing to add to the statement which my right hon. Friend made. No doubt, if my hon. Friend wishes, he may put that point in debate, but I cannot, of course, add to what my right hon. Friend said on the subject a few moments ago. In any case, what we are discussing now is our own Exchange Equalisation Account. The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) used rather a striking phrase in his speech on Monday on the Financial Resolution, when, referring to the holder of foreign securities, he said:
It is rather remarkable to note … that he actually prefers sterling securities to the possession of gold itself, and it is a very great tribute to this country that that should be so."—[OFFICIAL REPORT, 28th June, 1937; col. 1668, Vol. 325.]
That is a view which we can certainly echo, and it is satisfactory that there is a degree of stability and confidence in this country which inspires that feeling abroad, and yet that very feeling sometimes has consequences which are embarrassing to us. It is, therefore, very necessary that we should take this step at this time. The Bill itself is one of two Clauses. It simply gives effect to the decision of the House that the aggregate amount which may be issued to the Exchange Equalisation Account from the Consolidated Fund shall be increased to £550,000,000.

4.0 p.m.

Mr. Dalton: My hon. Friends are not going to oppose the Second Reading. I need only say that by way of preliminary in view of the statement made here the other day. None the less this is perhaps a suitable moment, as the Financial Secretary himself has suggested, to make some general observations on the position in which we find ourselves. There are one or two matters which are frequently commented upon in the Press, but which have not been referred to specifically by the Financial Secretary nor by the Chancellor of the Exchequer in his speech the other day. The Chancellor of the Exchequer is perhaps going to say something later, and perhaps he will be able to light up one or two points which have been left in obscurity. The principal purpose of this Measure, we understand, is to take further means to strengthen financial co-operation between this country and the United States and France, and my hon. Friends are wholly

in favour of the principle of such cooperative working between the three greatest democracies left in the world at the present time, and indeed, as my right hon. Friend the Member for Keighley (Mr. Lees-Smith) said the other day, we hope that this is not the limit of financial and economic co-operation between these three nations, but that the Government are prepared to go a good deal further by way, for example, of financial and trade arrangements with the United States of America.
A point which has not hitherto been mentioned and on which the Chancellor of the Exchequer might throw some light is how far the United States Government have joined with the French Government in desiring or in welcoming from us this step; in other words, how far this Bill is due to American as distinct from French suggestion. I suspect that in some degree it is due to American suggestion. There have been rumours which have apparently played havoc with the nerves of the hysterical inhabitants of the City of London as to an impending change in the gold value of the dollar, and in spite of persistent denials of any such intended change there have been spasmodic movements on the foreign exchanges and also in the security markets. It would be interesting if we could know whether this Bill is part of a programme of Anglo-American co-operation which has for one of its objects the prevention of any present variation in the gold value of the dollar.
Passing to France there is, I think, a certain resemblance between the situation in France to-day and the situation in this country in 1931—a resemblance in this particular respect. In France to-day, as in this country in 193r, unpatriotic and wealthy citizens are depreciating, and speculating in, their country's money, and just as in 1931 one of the difficulties against which we had to contend was that so many wealthy people were crying stinking fish about our own country's financial situation and had been moving their own private property and their liquid funds into foreign currencies, so France is suffering to-day from the same combination of a highly concentrated degree of wealth in a few hands, of a lack of patriotism among wealthy people and of their political animosity against the Government of the day. I am very glad indeed that the Government of the day in France,


with the mandate of an overwhelming popular vote obtained not long ago, is boldly facing this situation and that it will be assisted by the Bill which is now before the House. If on no other grounds, my hon. Friends would be favourable to this Bill in that it will help to hold up the arms of French democracy against other political forces in France.
I would make this further observation: Although there is a certain similarity between the French situation and ours in 1931, the French to-day are better placed than the British Government was in 1931 for dealing with this situation. In the first place they are not tied to a fixed gold parity as we were. They have very wisely retained power to vary the gold content of the franc, to vary the relationship between the franc and gold, and that gives them a certain freedom of manoeuvre which we sorely lacked until the National Government fell off gold in the latter part of 1937. In the second place, our French friends have this advantage at the moment compared with our situation in 1931: there is a very close and organic relationship to-day between the French Government and the Bank of France owing to the fact that the present Government in France have taken steps to make the Bank of France a public institution, to nominate governor, and to secure the close and harmonious working of the bank in a subordinate capacity to the Government.

Mr. Boothby: Does the hon. Member suggest that there was not an organic unity between the late Lord Snowden and the Governor of the Bank in 1931?

Mr. Dalton: That was a case of personal domination rather than constitutional relationship. I shall come to that personal aspect in a moment. But the French Government is relatively well situated in the two respects I have mentioned, freedom of manoeuvre in regard to the relationship of gold to the franc and effective control over the operations of the central Bank with the governor as the Government's nominee. Having said that I think we must admit that, given the existing situation in France, the decision of the French Government to let the franc fall is wise, to let it fall within certain limits, which will no doubt in part be determined by the operation of this Exchange Equalisation fund. I

can conceive that the purpose of the financial operations which are likely to ensue under this Bill is to hold up the franc, not at an artificial level, but to prevent it being driven unduly low by unpatriotic or profit-seeking speculators, to permit the franc to fall to its natural level in relation to the current balance of trade and of payments, but not to permit it to fall below that. I conceive that to be the purpose of the financial operations which are to follow, to which this Exchange Equalisation fund will contribute. Of such a purpose we can warmly approve.
As I understand the matter, and as it has been expounded from time to time by spokesmen from the other side, the purpose of the Exchange Equalisation Account is not to prevent all movements of the exchanges, but to prevent unsteady and speculative movements of the exchanges. Herein we have advanced a long distance since 1931, when it was deemed necessary to prevent all movements of the exchanges except within the very narrow limits of the gold points under the old Gold Standard. It is now recognised pretty generally that a certain freedom of movement of the exchanges is most desirable at times of instability of trade such as that through which we are now passing. In so far as the purpose of the Exchange Equalisation Account is not to clamp the exchanges, neither the franc nor the sterling exchange in terms either of gold or of other currencies—not to clamp them by some legally authorised parity but to allow them to move freely and steadily in accordance with the movements of the balance of payments and the currents of trade—so far as that is the purpose, I think it has the support of an overwhelming majority of instructed opinion in all sections to-day.
But I would like to emphasise this point. My hon. Friends here would give no support to this Bill at all if it contained provision for any clamping of sterling to gold, or if indeed we thought that that was one of the purposes behind it. The Chancellor of the Exchequer has stated that that is not so. Perhaps he can give us yet one more reassuring statement on the matter. He gave the other day an answer to a question that was indeed reassuring upon the point, but we should be glad to have the matter clearly stated again—that there is no purpose


here except to prevent unsteady movements, not to prevent steady and natural movements, in the relationship between gold and any of the principal currencies or between the principal currencies themselves.
I have to add only three further reflections. First of all, if you are going to have an Exchange Equalisation fund at all, it is eminently desirable that it should be strong enough to do its work. It appears to me that a condition of the fund being strong enough to do its work is that it should never degenerate into a position in which all its assets are of one sort. I understand now that our fund, unreinforced, is practically all gold. As to the French exchange equalisation fund, the hon. Member for South Kensington (Sir W. Davison) said just now that it had all been spent. I think that was an inaccurate term of speech. Perhaps he meant that the assets are now all francs so that no further purchasing operation, of francs with gold or other foreign exchange, is possible. On the other hand, our fund has become practically all gold, or that is what we are told. If that is not so, perhaps the Chancellor of the Exchequer will say so later. I am merely on the general proposition, which I think will be generally accepted, that the condition of the effectiveness of an exchange equalisation fund is that it should be able to maintain a certain variety in its assets. Whatever operations of purchase or sale may be required in order to perform its function, a necessary condition is that its assets shall be, as it were, a mixed bag. The test of whether a fund is large enough in any circumstances is how far it has succeeded in maintaining this mixed character among its assets.
Passing to two final points, I would recall that my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) made a very interesting reference the other day to the relative roles of the Treasury and the Bank of England. It appears—here I go back to the point of personal relationships raised by the hon. Member for East Aberdeen (Mr. Boothby) that since 1931 the Bank of England has lost influence and the Treasury has gained it. In so far as that is true, whatever view one may have of Treasury officials—they are a very able body of men though sometimes their purposes may be less wide than those of some of the rest of us—I think there will

be agreement on this side of the House that any increase in the influence of the Treasury relatively to the privately-owned Bank of England, and still more relatively to the Bank of England under its present Governor, is all to the good. On many occasions he has given bad advice and the Treasury has given good advice. We feel happy that Mr. Norman's influence on our policy has diminished, and particularly so when political considerations, not strictly of a monetary character enter into the question. If we are seeking whole-hearted co-operation with France, then, in view of certain past events, we are all the more relieved that it is the Treasury rather than the present Governor of the Bank of England who is the most important source of advice on these matters. Mr. Norman in the past has given the impression of loving France less than some other European elements, and we therefore welcome the increase in the influence of the Treasury.
With regard to the future monetary policy of this country and of the civilised world, my right hon. Friend the Member for East Edinburgh the other day urged the Government to think deeply as to their future intentions in monetary policy. What do they intend to do about this continued output of unwanted gold? It is, indeed, a ridiculous situation in which, particularly in South Africa and Soviet Russia, great quantities of this metal are dug out of the earth, are then shipped about the world at great expense, and sometimes shipped backwards and forwards at great expense at short intervals, and finally buried in bank vaults and other safe places. It is intrinsically a ridiculous system, and many of us have contended that we should seek more and more to establish stable internal values of national currencies, and relatively stable international exchange rates, and in this process should by-pass gold altogether. It is easier said than done, but I hope we shall not think that by passing this Bill we have come to a permanent solution because we have not. A permanent solution, even a solution that would endure for a short term of years, must depend upon some further effective co-operation between various nations regarding monetary policy. The Tripartite Agreement between this country, France and America is admirable on its merits, and admirable by reason of the partners in it. In addition, the sterling


group still lives, and I hope will continue to live.
It is evidently more desirable that we should get the fullest co-operation on monetary and trade questions with those nations which have linked their exchange with sterling, many of them what I may call politically desirable nations—democratic nations such as the Scandinavian nations, among others. If to the strength of the present: membership of the sterling group, which includes all our own Dominions and various European and South American countries, we can add France and the United States—although I do not think they will actually enter the sterling group—and those countries which naturally follow France and the United States, we shall have got very near to a full world conference on these matters. I hope that the Government will pursue consultation in an effective fashion with other nations, including particularly the two which are in our minds to-day, and that they will he able to hammer out some constructive international monetary policy which will not leave us at the mercy of the vagaries of gold discoveries or of unpatriotic speculators or financial panics in future years.

4.20 p.m.

Mr. Owen Evans: The Chancellor of the Exchequer indicated the other day two reasons why he wanted to increase this fund. One object was to check undue fluctuations in the rates of exchange. The House will realise how important that is, for those of us who are simple-minded people and not financiers in the City, have to deal daily with commercial transactions involving the export of goods to other countries. It is most important that we should have as far as possible stable rates of exchange between nations. There can be no doubt that this has been achieved largely by the action of the Government in setting up this Equalisation Account. We have seen only in the last few days how difficult it is for traders and exporters in this country to deal with their contracts and sales in view of the unsettlement across the Channel. I do not entirely agree with what the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) has said with regard to the position in France. Those of us who have to do business with France and visit it now and again know perfectly well that the position might not

unfairly be said to be that the Government of France promised a great deal at their general election which they have attempted to carry out too readily, and without regard to the needs of adjusting conditions in the country to the new legislation. I venture to say, without quarrelling with the policy of the Government in France, that whatever policy of a Socialist kind that is adopted must be done gradually and with some regard to the economic position. That has something to do with the present financial position of the French Government.
There is another point which the Chancellor has made with regard to this fund and its increase now. In this respect I entirely agree with my hon. Friend the Member for Bishop Auckland as to the importance of the Tripartite Agreement. The House should remember some of the provisions of that agreement, and particularly the objective of it as stated by the three Governments at the time it was made. There are two features of it which will enable us to judge how far this fund can achieve the purpose of the agreement. The combined statement of the Governments was that they desired to foster those conditions which would safeguard peace. That is in the forefront of the statement, for there is nothing so detrimental to the peace of the world as conditions which prevent good trading between nations. Therefore, any means by which easy exchange of money and currency can be obtained is bound to contribute to peace. Furthermore, these three great democracies joined together, as they said in their statement, to promote general prosperity, not only in the three countries, but outside, and to improve their standard of living.
How are they going to do it? They are going to do it, according to their own statement, by using all the available resources of the three countries so as to avoid any disturbance in international exchange. I again agree with my hon. Friend that in order to set aside all our available resources it means that this fund must be strong, and strong in proportion to the available resources of each of the countries which have subscribed to the agreement. For that reason I consider that the Government are justified in putting these proposals before the House, because they know what the available resources of the country are, and what part of the resources are needed to give effect


to this Tri-partite Agreement. I would also like to emphasise the need of consultation between the three countries. That, again, is laid down clearly, and I hope that the Chancellor will be able to give some information to the House as to what steps have been taken to consult the other two countries about these proposals. How often do these consultations occur, and what has been the result of them so far?
There is one other point which must not be overlooked. The stabilisation of the exchanges is not done for that aim alone; the only object of stabilising the exchanges is to increase trade between countries, and I ask the right hon. Gentleman to assure the House that that ultimate object of the Tri-partite Agreement will be kept in being, and that it will be linked, as it was when it was established, with the development of international trade. In a statement issued by His Majesty's Government at that time they said that they attached the greatest importance to action being taken without delay to relax progressively the present system of quotas and exchange controls with a view to their abolition. I ask the Chancellor to give an assurance that, when he asks for this large sum of money to be applied to the use of this fund, that ultimate object is always to be borne in view by the Government, because the object that we all have is to increase trade between the nations, and thus to establish better conditions for the peace of the world.

4.30 p.m.

Mr. Loftus: I listened to every speech in Monday's Debate, because I cannot imagine any question, apart from the question of peace and war, which is more vital to the interests of this country, to industry and to all engaged in industry, than the present and future monetary policy of the country; and, of course, this Exchange Equalisation Account is part of the lifeblood of our present monetary policy. During Monday's Debate I gathered four strong impressions. First, that there was a general welcome for the Government's proposal, qualified by the small reduction moved by the right hon. Member opposite, a welcome especially in view of the situation then developing in France. The second impression was that there was an undercurrent, a hint, of disquiet, about the large size of the fund and the large accumulation of gold.

The third impression was an undercurrent of inquiry as to the future policy—to use an abominable modern term, the longterm policy—of the Government in monetary matters, and combined with that suggestion for information, there was a division of opinion in the House, not confined to one side. Some Members obviously hankered for a return to the orthodox Gold Standard—Members both on this side and Members opposite.

Mr. Dalton: Does the hon. Member suggest that any of my hon. Friends here were hankering for a return to the Gold Standard?

Mr. Loftus: I think I heard one Member speaking immediately behind the hon. Member definitely advocating a return to the Gold Standard.

Mr. G. Strauss: I certainly did not

Mr. Loftus: I did not expect to get any definite information as to the long-term policy, for the very good reason that I fancy the Treasury and the Government during the last six years have been acting in the matter of monetary policy entirely in a pragmatic manner, using the term in the very best sense of the word. I fancy that when they took over from the Bank of England, six or seven years ago, the task of managing the monetary policy it was rather a case, to use the old Latin tag, of solvitur ambulando. They have learned a great deal step by step through experience, but they are probably not in a position as yet to lay down hard and fast plans for the future. I think the fourth point which emerged from Monday's Debate was a general desire in all parts of the House that there should be co-operation to the utmost extent with the United Skates of America.
I turn to the size of the fund. Including the old Dollar Fund it is, or will be, £575,000,000. That was practically the size of the National Debt when I was young, and before my first war, the Boer War. The gold we hold is £700,000,000. I think our gold holding per head works out roughly the same as the holding per head of the population in the United States—at any rate the holding there per head is very little more than here. For that reason I rather regret that my hon. Friend the Member for East Aberdeen (Mr. Boothby), who I regret is not in


his place, suggested that we should bring pressure to bear on the United States to utilise its gold to expand currency. I do not think that policy would be at all desirable, for two reasons. In the first place, if the United States used that mass of gold in the full orthodox manner to expand currency, it would have led to an enormous rise in prices, and that in turn would lead to the wrecking of its industries—the flooding of the country with imports and colossal unemployment, and no American Government, or any Government in any modern democratic country, would ever again work the orthodox Gold Standard so as to wreck its own industries, force down wages and cause great unemployment. I suggest that if we preach to the United States the way they should go, they may reply, "Physician, heal thyself," because we are also sinners—sensible sinners—as regards financial orthodoxy. We have not used our accumulations of gold according to the strict rule of the game in expanding our currency. We have deliberately refrained from doing so by three methods. In the first place, we have reduced the fiduciary issue by some £60,000,000. Secondly, we have taken gold as the basis of new issued currency not at 140s. per ounce, the price at which we bought it, but at 84s. 11½. Thirdly, we have sterilised some of the gold in the Exchange Equalisation Account. We have obviously not played the orthodox game, because, again, it would have raised the price level very rapidly and led to inflation.
We and the United States are both borrowing money and using that money to buy gold partly in order to sterilise it. We are increasing the National Debt—we on a small scale and the United States on a very big scale—to bury gold where it brings no income, and, of course, it is a question of how long that can go on. The question was raised by, I think, the hon. Member for Bishop Auckland (Mr. Dalton) as to whether the United States would reduce the price of gold or still worse, stop buying gold, and if they did he suggested that it might place us in a difficult position, because the price of gold is entirely, as it has been for 200 years, an artificial price, a pride fixed by law. If one had to buy tin at the central banks of the chief countries at £300 per ton—or at very minute variations on that price—tin would have re-

mained almost at that particular price till the law released the banks from that obligation. There is no price of gold except that fixed by law, and therefore if the law breaks down nobody knows to what figure the price of gold would fall. Therefore, I feel that it is doubtful whether the United States will do anything to depreciate the value of gold, not only in view of her own large holding, but for this very important reason.
The hon. Member for South Croydon (Mr. H. G. Williams) pointed out on Monday, that these equalisation accounts are created by Treasury bills which go out into the world for paying for the gold and currency. These get dispersed partly to primary producers throughout the world and he said that this was a form of world inflation. I shook my head at the time, but I think he was right. I think that these colossal equalisation accounts, aggregating about £1,000,000,000, have had the effect of raising world prices, and I think we ought to realise that the policy of President Roosevelt is to raise world prices, as the policy of most nations is to raise world prices. Therefore, I do not think there is any chance of the United States doing anything to wreck the price of gold. One suggestion which I have seen in the Press is that the United States might tax what is called "bad money" or "hot money," and here, with a great deal of diffidence, I ask my right hon. Friend the Chancellor of the Exchequer whether there is not a possibility of our considering something on the same lines. After all, if fugitive capital comes to this country, if people are afraid of their own country and send capital here for safe keeping, some charge, however small, ought to be made for that safe keeping. I admit that there would be great difficulties, but I think that foreign money which comes here on deposit could be got at and taxed. The answer may be made "That would drive this refugee money into the purchase of Government securities." What if it did? That would be a good thing. It would help to keep up the value of Government securities. It would give stockbrokers increased incomes, which would be heavily taxed in the normal way and so the country would gain in both ways. I feel that is a suggestion which is worth considering, because it does appear monstrous that the taxpayers in the


United States, France and here should be taxed to find vast sums of money, some of which—I do not say all—is required on account of this refugee money moving about from one centre to another.

Mr. MacLaren: Hitler has cured that.

Mr. Loftus: This accumulation of gold, £700,000,000, has, possibly, certain psychological reactions. I suggest, in the first place, that it gives the Government and the nation, all taxpayers, a kind of vested interest in maintaining the price of gold. My hon. Friend the Member for East Aberdeen said, and I agree with him to a certain extent, that if the price of gold were lowered it might have a psychological reaction throughout the world and lead to a fall in prices, which I agree would be a disaster to the world. Prices are not yet high enough. The second advantage is that having this mass of gold, I think we may be led, as the hon. Member for Cardigan (Mr. O. Evans) said, to attach an undue weight to the rigid fixing of foreign exchange. I thoroughly agree with the hon. Member for Bishop Auckland that that must be a secondary consideration. It is much better to have minor fluctuations of foreign exchange so long as we retain the control of our own internal price level, our own issue of money and so on.
After all, part of the reason for the bitter devaluation of 1925 and the following year, and in 1930 and 1931, was to keep sterling at the right level with the dollar and the franc in a desperate effort to save the external exchanges at the expense of wages, industry and employment. I feel that if it becomes a choice of maintaining the external rates of exchange, or the internal control of the price level, then the vote must go against the external exchange every time. I understand that Sweden has suggested that she cannot maintain parity with the pound if our price level rises or indeed does not fall, but I do not think we can sacrifice our price level to Sweden. Sweden has a satisfactory price level, as shown by the fact that she has practically no unemployment. We have still an unsatisfactory price level, as shown by our vast number of unemployed. Therefore, we must not sacrifice our pound or finally adjust our price level till we get the same satisfactory state of affairs as exists in Sweden to-day. A further psychological objection to our holding this vast mass

of gold is that it might create a mentality hankering after a return to the old orthodox, rigid Gold Standard. That I would regard as a disaster in which every one in the country would suffer, apart from a very small minority.
It may be argued that the Gold Standard worked well in 1914; but did it? It broke down on every occasion when great pressure was applied to it, in 1847, 1857, 1866 and 1914. One reason why it worked, however badly but still worked, was that we were practically the only creditor country. Once other great nations became creditors, the whole thing broke down. In 1924–25 we raised our bank rate higher and higher, but we did not attract the gold, which still flowed into the United States. Even when the Gold Standard worked it did so only by periodic alternations between deation and inflation. The Cunliffe Committee in 1918 pointed out clearly the effect of raising the bank rate. As gold leaves a country the central bank has to raise its bank rate in order to protect its gold. In the actual words of the Cunliffe report, as far as I can remember them, the effect of a rise in the bank rate is, first a slowing down of all capital expenditure, second the forced sale of commodities on a weak market, third a general fall in the price level. We were warned in 1918 what would happen if we carried out that policy. I do not think that industry will ever submit again to the deflationary policy which caused so much misery in the post-War years.
I agree with the hon. Member for East Aberdeen that we still have not recovered. The price level is not yet high enough. I notice that in India the price level was 178 in 1918, 88 in 1933 and about 70 at the end of last year. The effect of a deflationary policy has been to halve the purchasing power of the people of India and to halve the income of the Indian peasants, and that effect caused disaster to the Lancashire cotton trade.
A general desire was expressed for co-operation with the United States, but we ought to know and realise what the policy of the United States is. From inquiries that many of us have been able to make it is obvious what the policy of President Roosevelt is. The first part of it was to raise the price level. Our own Macmillan Committee advocated raising the level to that of 1928 and the Ottawa Agreements also advocated raising the price level. In


1933, the agreements signed by the Dominions and by the Prime Minister advocated raising the level to equilibrium with the Debt Structure and to give remunerative prices to the primary producer. On that point we can obviously co-operate to the full with tie policy of the United States. The second feature of the policy of the President was to get the price structureright. When the slump came, prices fell away, but prices of manufactured goods fell to 80, while prices of primary agricultural goods fell to 40. It was necessary to raise these to parity with manufactured prices, hence the policy generally condemned at the time of destruction of crops and ploughing up of land. That policy was successful, and the latest figures I have seen last week were that agricultural products were just over 80 and manufactured goods prices about 85. That is an essential part of any monetary policy, because the chief purchaser of the products of industry throughout the world is the primary producer, and you must get his prices right if the man in the street is to live and industry is to prosper.
The third point of President Roosevelt's policy is to stabilise, when a satisfactory price is reached, and to keep stabilised. It is to keep the general price level stable. Is there anything we can object to in that? It is part of our own policy. The declaration of the British Empire at Ottawa, and again in 1933, signed by all the Dominions, was that when the price level was raised to a proper level every effort should be made to stabilise it. I suggest that we have every reason to co-operate with the policy of President Roosevelt and with the United States Government because that policy is, in effect, that which was laid down at Ottawa and re-affirmed in London in 1933. I feel that if we could get agreement we could carry on, and that we might then work to stabilise our exchanges—but not on gold. We might advance gradually to some system of fixing the exchange rates and giving a monopoly of all bills of exchange to the central bank in each country, having an international clearing house and making international trade what it should be, a mutually advantageous exchange of goods and services, not complicated by the striving for power and for gold, by the striving of the debtor to pay his debts or of the creditor to increase his loans.
In the last six years we have gone through a revolution in finance in this country, little realised by the mass of the people. Up to six years ago, as for 200 years past, the Bank of England controlled the amount and the volume of currency. It controlled also the purchasing level of currency and the rates of interest. After 1931, our Treasury, bit by bit, have taken over those powers. During recent years the Treasury has had control of the volume of our money, of the purchasing level of our money and of the rates of interest. I would regard it as a terrible disaster if the Treasury ever handed those powers back, and did not retain them for the public good.
The future is full of financial difficulties. In peace time we have reached almost the level of war taxation. We are practically at maximum taxation; and note that our social services must automatically increase as the years advance. Note also that we are heading for a stationary and then a declining population. How are we to bear this burden of taxation? There is only one way, by increased national production. If we can employ the resources of the nation to a maximum of 100 per cent., we can lighten the load of taxation; above all, if we can make our price level stable we can lighten year by year the weight of taxation. It is necessary that the Treasury should retain control of monetary policy and retain the power to regulate the amount of currency and the price level. I believe that we are at the beginning of a period when, if we move forward carefully but with the requisite determination, we can enormously improve the standard of life of our people by the careful management of the currency. I therefore support the proposal now before the House.

4.56 p.m.

Mr. G. Strauss: I do not intend to follow the hon. Member for Lowestoft (Mr. Loftus) in his very full survey of the money situation as it is to-day and as it has been during the last 10 or 20 years except to comment that I think he is mistaken if he imagines that this country can attain a 100 per cent. capacity in its production by monetary manipulation alone.

Mr. Loftus: My point was that increased production has always been checked by lack of purchasing power and


if we could get our price level stable that would automatically mean that there would be sufficient money to purchase the goods on the market.

Mr. Strauss: It would take me some time to go into that point. In my view, and I think in the view of many of my hon. Friends, that reading of the situation is almost wholly fallacious. It would be going far outside the limits of the Debate to argue the point. I agree that it is highly desirable that we should attain the maximum production in this country, but it would require a fundamental measure of change in our social system before that happy situation was obtained. I am confident that it cannot be done by any Treasury control under the present industrial system.
I expressed my views at considerable length when the Financial Resolution was before the Committee, and I do not intend to repeat them to-day. I rise merely to make one short point, which is to say that the situation, as explained by the Chancellor of the Exchequer the other day, in regard to the degree of publicity which is to be given to the Exchange Equalisation Account, is not satisfactory at the moment. I have read the Chancellor's statement very carefully, and the more I read it the more unclear it becomes in my mind. Possibly the Chancellor will be able to make some further explanation which will be more satisfactory. He started by saying that the annual account would be put before the Public Accounts Committee, and that was all right as far as it went. We imagined, or, at least, I did, that the Public Accounts Committee would have quite considerable detail and would know, when the Account came to be valued, which was to be on 31st January in respect of accounts made up as on 3rst March in the previous year, the position of the fund and whether it had made profit or losses in the period under review, and also what those profits and losses were.
The Chancellor went on to say that the account would give
an indication as to whether at the date when the Account was taken the result was a profit or a loss."—[OFFICIAL REPORT, 28th June, 1937; col. 1663, Vol. 325.]
That is very different. We have already been told in the Budget Speech whether there is a profit

or a loss on the Account, and it is highly desirable that the Public Accounts Committee should know not only whether there was a profit or loss on the Account but what that profit or loss was. I fully appreciate that it is impossible for the Chancellor or anyone else to make a public statement as to how the Account is going from day to day, because that would defeat the whole purpose of the Account; but I maintain very strongly that, when this vast sum of public money is being used, I agree for a desirable purpose, but nevertheless is being used in what must be a highly speculative manner in attempting to curb undue fluctuations of the exchange, the public are entitled to know, after a reasonable period and when all danger is past of the information being used for some harmful or unsocial purpose, whether, on the £550,000,000 which has been handed to the Chancellor of the Exchequer, there has been a loss, and, if so, what that loss was; or, on the other hand, whether there has been a profit, and, if so, what that profit was.
According to the Chancellor's statement the other day, not even the Public Accounts Committee is to know what the profit has been, if there has been a profit, on the Exchange Equalisation fund, nine months after that fund has, so to speak, closed its books. It may be that the Chancellor did not explain himself on this matter as clearly as he usually does, and that the Public Accounts Committee will know what has happened in regard to the fund, but certainly, according to his statement as he made it, the Public Accounts Committee will not have that information before them at all. I believe that after nine months this House and the public should know exactly what has happened to the £550,000,000 which they have put under the charge of the Chancellor. I know of no reason, and no reason has yet been given, why the public should not know after the passage of a reasonable period of time. If the Chancellor says that nine months is too close, let us say 18 months, or two years; but I cannot see what public damage can follow if it is reported by the Chancellor to the House and to the public what, during a certain year's working, was the loss or profit on this money which the public have provided. I think the public are absolutely entitled to know that.
It is public money, and, unless some strong reason can be put forward, which certainly has not yet been done, why the information should be kept permanently secret, I would strongly urge the Government to consider their duty of reporting this matter to the House of Commons and making it public once a year after an appropriate period has passed from the making up of the accounts. I shall await with interest what the Chancellor has to say on the points which I have raised, namely, how much information is really to be given to the Public Accounts Committee; whether they will know what profits or losses have been made during the period they will be reviewing; and why that figure—I am not asking for further details—should not be communicated at the proper time to the House of Commons.

5.10 p.m.

Mr. Boothby: I make no apology for making a few further references to this subject, because I am sure hon. Members will agree with me when I say that, with the exception of foreign policy, this is by far the most important subject that the House of Commons can discuss at the present time. I took the opportunity of doing a thing which I suppose we all ought to do every day, but which, I must confess. I do not do every day—I read the Debate on the Financial Resolution verbatim, from the first word to the last; and what struck me was the enormous amount of common agreement between all the speakers on both sides of the House as to the policy to be pursued. If I may give the House the benefit of my reading, I would like to say that there is a consensus of agreement on both sides of the House on the following points.
In the first place, there is agreement that the present policy of the Chancellor of the Exchequer, in increasing the Exchange Equalisation Fund for the primary purpose of putting us in a position to buy gold or other assets as necessary, is the right policy. If I may add a word of my own, I would like to say that I think the opening statement of the Chancellor of the Exchequer in bringing this Financial Resolution before the House was the most comprehensive and lucid statement of monetary policy that we have had from any Minister of the Crown since the War.
The second point on which there was a substantial measure of agreement, and about which the Chancellor of the Exchequer himself agreed, was that you cannot hope to alter fundamental longterm economic trends by exchange equalisation accounts, or any form of currency manipulation; and the third matter upon which there was a consensus of opinion was that neither a rigid de jure stabilisation nor a mere day-to-day accommodation of exchange rates is at present desirable. Something is wanted between the two—something between de jure stabilisation and the mere day-to-day ironing out of exchange fluctuations—which may perhaps best be described as conditional stabilisation. I think that that is a phrase which will appeal to hon. Members on both sides of the House.
Then there was a remarkable amount of agreement that this conditional stabilisation, within definite limits, should be subject to periodical revision in the light of existing conditions. It was felt by hon. Members on both sides that, in the case, for example, which we have in front of us to-day, of a country like France, which pursues an internal policy—it may be right or it may be wrong—which can only have the effect of raising prices, the currency of that country ought not to be artificially maintained by us or by any other country, but should be allowed to find its own level. There is no doubt that the French Government have pursued during the past year a policy which was bound to involve a rise in internal prices. That means, if the word "exchange" means anything, that the franc has got to fall, and it would be false economics, and a false policy altogether for either ourselves or the United States, to seek to bolster up the franc at an artificial level, in relation to the internal price level of France. There is no doubt that the present price level in France, and the price level which we can expect to prevail in future, necessitates a considerable fall in the exchange value of the franc; and, in so far as the new French Government are permitting that, I think that in the long, run we can only regard it as satisfactory, because it is another factor making for reality; it brings us back to the facts. As long as any important currency in the world is at an obviously artificial exchange rate, so long must the day of stability


and of a genuine revival of confidence and of international trade be postponed. In so far as the present French Government are seeking, at long last, to grasp the nettle firmly, and to allow the franc to find its proper level, to that extent the prospects of a geuine revival of trade and confidence throughout the world are enhanced rather than diminished.
Then, I think, a desire was expressed on all sides of the House that there should be co-operation, and not competition, between the different exchange accounts; and, lastly, it was felt that some sort of de facto stabilisation was necessary, plus the abolition of exchange restrictions and commodity quotas, before we could ever hope successfully to negotiate a trade agreement with the United States of America, which was generally regarded as highly desirable. A necessary prelude to the negotiation of any trade agreement must be a de facto stabilisation, subject of course to periodical revision, and a removal of the exchange restrictions and quotas which are doing more than anything else to impede the volume of international trade at the present time.
If I may add a word of my own, more or less supplementary to the remarks I made on the Financial Resolution, I would like to say that not one shred of evidence was advanced in the Debate on the Resolution that there is at the present time in the world a superabundance of gold, or that, if conditions were more normal, there would be more than sufficient gold adequately to sustain the credit structure of the world. If there be such a superabundance, why should those who fear it and complain about it, like my right hon. and gallant Friend the Member for Ripon (Major Hills) or my hon. Friend the Member for Stockton-on-Tees (Mr. H. Macmillan), be so afraid of a de jure stabilisation? They both said that they feared a de jure stabilisation because of the deflation that might be involved; but, if there be this tremendous plethora of gold in the world, there could be no such risk in a de jure stabilisation. I myself do not want to see a de jure stabilisation; but I do not want to see it for the very reason that I am not convinced that there is, in all circumstances, enough gold available for monetary purposes in the world; and, I do not want to run any further risk of any kind of deflation; we have had enough of that since the War, and do not want it again.

Mr. Bellenger: Would the hon. Member qualify that statement by saying that the gold is not adequately distributed?

Mr. Boothby: Certainly; there is, of course, a problem of maldistribution, but that is a very different thing from a problem of superabundance, and we ought not to confuse the two. As a matter of fact, we have had striking evidence in the last few hours that there is not yet a superabundance of gold in the world, because at present the difficulty which confronts the French Government is due to the fact that they have not enough gold. They are faced with a serious financial crisis for the very same reason that we were faced with a serious financial crisis in 1932, namely, that we had not enough gold. All I would say is that I would much rather, human nature being what it is, and human beings thinking what they think, that we had too much gold, especially in existing conditions, than too little; and I say that both in my personal and in my public capacity. [An HON. MEMBER: "That is not Christian doctrine!"] I do not know whether it is Christian doctrine or not, but I know that it is sound sense.
It may be, as I said just now, that there is maldistribution; but both the causes of that maldistribution and the remedies are obvious; and, until those causes are removed, it is idle to talk about a plethora of gold or about a reduction of its price. We may have to consider that in the years that lie ahead, but that time has not yet come. No evidence was brought forward in the Debate yesterday that a reduction in the price of gold would not bring about commodity price deflation. On the contrary, I am absolutely convinced that, in present circumstances, if the price of gold were arbitrarily reduced, without good reason, there would in fact be an instantaneous fall in commodity prices. I make that assertion with confidence. I believe it to be true for one reason, if for no other, that every trader all over the world would undoubtedly regard a reduction in the price of gold as a signal that there was going to be a fall in commodity prices; and that overwhelming psychological factor in itself justifies the most strenuous efforts to avert a reduction of the price of gold.
Lastly, there is not the slightest reason to suppose that either the United States


or ourselves could afford to reduce the price of gold. The United States Government has over £2,000,000,000 worth of gold at the present time, and it has pledged that gold for the future against the enormous expenditures to which it is committed. So far as we ourselves are concerned, I would say that the present burden of National Debt cannot be borne without a considerable further rise in money incomes in this country. I do not think the House realises that the debt burden of this country at the moment is almost double the annual national income, whereas before the War it was only one-third of the annual national income. The debt burden of this country is in fact crushing; and, if it is increased, any hope of balancing our Budget is, I think, finally removed.
As I said on the Financial Resolution, the problem confronting humanity for generations past has not been how to increase debts but how to write them off; and I do not think that problem is likely to alter for many years to come. If I were to suggest an immediate short-term solution of the problem that confronts us, the first and most important essential is the restoration of confidence, and I believe that to be as important from the political as from the economic point of view. I think that the Chancellor of the Exchequer is doing a great deal both in his speeches and by increasing this Account to restore confidence at a time when it is very badly needed. Another desideratum is to allow the commodity price level to continue its rise—not too fast—because commodity prices are not high enough yet, and genuine prosperity ultimately depends on the prosperity of the primary producer. After we have achieved the necessary rise, both in the United States and in this country, of wholesale commodity prices, then will be the time to attempt a de facto stabilisation through real co-operation between the Exchange Equalisation Funds. And this in turn should be an integral part Of that larger economic agreement which we all hope, to see between the British Empire and the United States, and which would be by far the most hopeful event that could happen in the world at the present time.

5.17 p.m.

Mr. Assheton: The Chancellor of the Exchequer has had a very general

measure of support for the Bill, but we ought not to overlook the fact that this additional £200,000,000 is only a palliative and not a cure, and that the time will very likely come when he will ask us for more. I think we realise, too, that this fund is needed not merely to iron out undue fluctuations but that it is now being used as part of high policy. It is only by the restoration of international trade and by a renewal of confidence, which will enable foreign lending to be begun once again, that we can hope for stability of exchanges. I hope that we in England and in the other countries of the Empire will appreciate that we have some contribution to make in discussion and negotiation for greater freedom of trade and exchange in the world, and I hope very much that in this country and in the Empire we shall be ready to take our share in making the sacrifices which all countries of the world will have to make if this is to be brought about.

5.19 p.m.

Mr. Lansbury: I am not an expert on currency and exchanges and finance generally. I rise only to say a few words coming from one who really has no experience of the subject. What has struck me during the discussion is the fact that almost every one of what used to be considered the fundamental principles of finance, national and otherwise, seems to have gone West. The discussion that is going on to-day between the experts seems to go round and round the question of the value of goods and how you can get their prices even higher than they are to-day. I should have thought commodity prices were rising and have risen pretty considerably owing to the tremendous expenditure on armaments in every country in the world. The money that is paid in wages is spent in increased consumption, and, although the ultimate effect is from the point of everyone useless, it is still true that there is a very largely increased consumption because of the lessening of unemployment. I think that must be obvious even to the experts in the House.
There is one point which never comes out in this discussion, and that is that the money that this wonderful system costs must also come out of production. There is nothing produced of any value by the buying and selling of gold. There is nothing whatever added to the true wealth of the nation if it has many


million pounds worth of gold. The only thing that adds to the real wealth of the nation is production by the social labour of all classes in the community who are taking part in it. I should have thought it was very nearly time the statesmen of the world faced up to the fact that this bogy of gold is something that we ought really to bury for good and for all.
Here is an amazing situation. In America gold which has been dug up somewhere or other is having to be housed in a new suite of premises which have been dug out of the rock in order to accommodate it. It may very well be that some gentlemen are making a good deal of money one way or another out of it, and it seems to me that they are a burden on the labour of the community. I should have thought that in the six years during which this Equalisation Account has been in existence someone might have been told off to produce a statement to the country as to the uselessness of pursuing the policy of the Gold Standard and to have at least attempted to work out better methods of exchange than those that prevail today. I may be ignorant, but I cannot for the life of me understand why money should be a commodity to be bought and sold. It may be that more people understand it to-day than did when a very noted financier who sat in this House once said that there were only three people who had ever understood international exchange and currency and two of them were dead, he himself being the other. How many there are to-day I do not know, because, as I listen to the experts, I get more and more bewildered.
I should very much like someone, perhaps the Chancellor of the Exchequer, to tell us why it is that we hang on to this worn-out system of determining the values of things and why it is that the three Governments concerned, and any others who will join with them, do not take measures to prevent gambling in exchanges in this fashion. Why should it go on at all? You can pursue criminals. These gentlemen are not criminals. They perform their business in the light of day and it seems to me that they ought to be told that this buying and selling and sending the value of money up and down should be ended. I do not think you will ever settle this question satisfactorily until that is done. I know

some people will say that is an impossibility, but it is only an impossibility because of vested interests, and those vested interests are to be found in the financial headquarters not only of our own city but of all the other capitals of the world.

Mr. Boothby: If someone does not buy and sell currency, I do not know how you are going to establish values.

Mr. Lansbury: The value of anything that has a value should be the exchange between one set of goods and another, not whether someone has bought francs to-day and sent them up and thereby made the goods of more or less value as the case may be.

Mr. H. G. Williams: What would be the right number of tomatoes to pay for a railway ticket from here to Bow and Bromley?

Mr. Lansbury: It would depend on the amount of labour involved in producing the tomatoes as compared with the cost of the railway journey that I wanted them to pay for. That seems perfectly simple and quite reasonable. I do not believe that money should be treated as a commodity to be bought and sold. If the hon. Member is going to speak and to challenge what I say, let him challenge that. I do not think the currency of the country should be at the mercy of gamblers who wish to make money out of buying and selling; therefore I think some other method should be found. I use the word "gambling" because it was used by the Chancellor himself the other day. There is gambling in currency. People buy it for a rise or sell it because they are afraid of a fall. Governments ought not to allow the currency of their country to be dealt with in that fashion. Whatever is gained is gained directly or indirectly out of the labour of the country. There is no value in the transaction at all and it produces nothing, but very often causes great dislocation in trade and industry. It seems to me folly to be storing gold and shifting it backwards and forwards. A much better arrangement would be to buy an island somewhere and put up a great establishment and have vaults for each nation and, when you want to exchange gold from one nation to another, wheel it in. If that were done, ordinary people would soon understand what a ridiculous and mad


system it is that we have been living under for many years, which has culminated in the fact that a nation which cannot keep its unemployed decently is able to raise money in the way we are going to raise this and, on top of that, £1,500,000,000 to spend on armaments. If that is not lunacy I should like to know what is.

5.30 p.m.

Sir John Wardlaw-Milne: The other day when speaking in the House the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury), who followed me, was kind enough to say that he did not often agree with what I said, but he did agree with some remarks I then made. I can pay him a higher compliment and say that I very often agree with what he says. This afternoon, although he has disclaimed to be any authority in currency maters, and indeed has said that he does not understand them, may I, without in any way claiming to be an expert in these subjects, say that he has put forward as good a case as I have ever heard for a currency based on price levels alone, and as to the uselessness of the so-called Gold Standard of the old days? He put it forward in a way which must appeal to everyone. The only difficulty is that he has not told us exactly how to bring about this very desirable state of things when the world will be able to do without that metallic basis for currency to which it has so long been accustomed.

Mr. Lansbury: By the development of common sense.

Sir J. Wardlaw-Milne: The development of common sense is something that we all hope to see, but whether it will bring about the result that he desires in the lifetime of anybody alive to-day I am inclined to doubt. Nature moves very slowly in these matters, and unfortunately any new or untried basis for currency would, I fear, in the early stages, bring about a state of unemployment and distress, in the near future at any rate, which it might not be pleasant to contemplate and which the right hon. Gentleman above all others would hate to see.
My right hon. Friend the Chancellor of the Exchequer must be gratified by the reception which his proposals have received and for the compliments, in which I join heartily, to the management of the

Exchange Equalisation fund in the past. But, as has been stated already this afternoon, there are really two aspects of this matter that we are discussing. The first is a temporary question, that of the provision of £200,000,000 extra for the Exchange Equalisation fund, and the second is the policy which this Government and indeed other Governments in conjunction with them must consider for the future. I am sure that there is no opposition in the House to the provision of this £200,000,000, although it is perhaps fair to say that the position has somewhat altered even since the House discussed the matter a day or two ago. There is, I am sure, equally no disagreement or divergence of opinion whatever regarding the desirability of our supporting the French Government and the French people in every way we can. But, as I understand it, when the matter was first introduced we were discussing the giving of £200,000,000 more to the Exchange Equalisation Account for the security of a fund which was being worked in conjunction with three nations, France, the United States and ourselves.
Is it going too far to say to-day that this country and the United States will in this temporary Measure have to carry one of the partners for a time? It looks to me as if that is the position in which we find ourselves. I do not say that it is a thing that we should object to. We may have to do it. It is in every way desirable, but it rather alters the position and it may well be that there will be a heavy strain on the Exchange Equalisation Account until the position in France alters, confidence is restored in that country and French money begins to flow back to its proper home. I do not in any way suggest that it is not desirable that we should support France, far from it. I am most anxious that we should. It is to their interests and to our interests, but it does not alter the fact that the strain upon us may be a heavy one, especially as we know that, in the purchase of unwanted gold, the United States have already gone very far. In this matter I am much in agreement with what was said by the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton).
It is, however, rather in connection with the second or long-term policy that I want to say a few words to the House. The output of gold in the last two years has been phenomenal but mainly from Russia.


The present position has come about largely by the fact that Russia which up to the end of last year largely retained her gold, has in this year been setting it free. Last year alone she produced 1,500,000 fine ounces more than the year before and is producing over 7,350,000 ounces now as against 1,700,000 ounces six years ago. We have to face the fact that if that production goes on increasing, added to as it is by the fact that in the last few years there has been a dishoarding of gold amounting to over £1,200,000,000 in addition to these excessive supplies from the mines, there well may come a time when neither the resources of this country nor of the United States could justly be used to buy up all this gold. It may well become impossible to continue, as the right hon. Gentleman and other hon. Members put it, to dig it out of one country and ship it to another and dig a hole and put it into the ground in Kentucky or elsewhere. If that position arises the situation would be a very serious one, and it is one which the Government of this country and of the United States must surely be considering at the present moment.
I do not disagree with my hon. Friend the Member for East Aberdeen (Mr. Boothby) when he says that there may not be too much gold in the world. I think that that may turn out to be the case. There are several reasons why one can justly say that you cannot make any real estimate of the position at the present time. In the first place, we have written up the price of gold, or, speaking more correctly we have reduced the price of currencies in terms of gold. Consequently there has been an exceptional output induced by the higher price, while the amount of gold used in art and industry is to-day about 5 per cent. of the annual output instead of 20 per cent., as is usual. There has also been this immense influx of gold from the East, and instead of the East absorbing about £15,000,000 of gold a year it has in the last few years given the rest of the world immense supplies. That situation may change. There is another reason however. Why are we not using at any rate more of the gold of the world than we are doing to-day? It is, I suggest, because we are not using it to raise prices. We are in fact, whether wisely or not is a matter of opinion, keeping prices low, and part of the trouble

in the United States of America arises from the fact that she has found it necessary to restrict the amount of gold which is the basis of credit and therefore to lower prices or rather to keep prices steady and not allow them to increase as they otherwise would.
I do not suggest for a moment that the whole of this extra gold can be made the basis for credit. If that was done there would undoubtedly be a dangerous rise in prices at any rate for some time to come and possibly a highly dangerous inflation. At the same time surely there is a middle course between that and not using gold to the extent it ought to be used to allow that gradual increase in price level which is essential to the prosperity of the world. As far as this country is concerned the necessary steps were laid down by the Macmillan Committee as every hon. Member of the House knows, and confirmed by a resolution of the members representing the Empire who gathered after the World Economic Conference, namely that we should raise the price level, and, having raised it, should endeavour to keep it stable. Speaking very broadly we have not raised it. [Interruption.] Oh, no. Let me explain. We have raised it to nothing like the extent that was in the minds of these gentlemen. I cannot conceive it possible that it should be so. We are not even up to the 1929 level yet. We are still 10 points below that level, and it cannot be said that the gold of the world has been allowed to force up prices to an unnaturally high level.
I do not know whether the present situation was brought about by the agreement between this country and America. It may well have been that when the late President of the Board of Trade visited America the difficulties there were put before him, and also the dangers—and great dangers existed—of allowing this immense amount of gold to be used as the basis of credit, and that it was agreed perhaps that it was desirable to do something to damp down the upward movement. At any rate that was done very successfully, in fact, perhaps too successfully. It went too far the other way. The point that I specially want to make in that connection is that we have not to any extent allowed this gold to be the basis of credit and thereby raise prices to a level which would bring


prosperity. I have often heard in this House the statement that we are in a boom period. I wonder where hon. Members get that idea?

Mr. Bellenger: From the Government themselves.

Sir J. Wardlaw-Milne: Speaking of the world, at any rate, there is far from being a boom; I doubt whether it is yet really out of the depression. I do not say that we are in a boom period here. I will give the House a figure or two to show that what I say is correct. The wholesale price level in this country last year was very little above that of 1913 and a good deal below the average level in this country from 1850 to 1880. It is perhaps a considerable surprise to some hon. Members to know that to-day the price level here is below that of the middle of last century. We are actually only 20 per cent. above the lowest figure for 150 years. That low level was reached at the beginning of this century. If you consider the change in currency conditions, you will see that in this country at any rate we are not in any way in a boom. It was not more than six years ago that things began to change for the better here. It may well be that the Biblical period of the seven lean and the seven fat years has often been followed. It is true that very often in the past there have been five, six or seven good years and then five, six or seven bad years. In this case, if the change began six years ago in this country, it clearly did not begin in America until 1934, and in Germany about the same time, while in what we call the gold-bloc countries it was not until last year that there was any change at all. Therefore, there certainly is no cause for saying that the world is suffering from the effects of a boom.

Mr. G. Strauss: Does not the hon. Gentleman consider that the wholesale price level is a fair indication of boom conditions, in view of the fact that the costs of production, owing to the introduction of labour-saving machinery and other devices, of practically all commodities, have gone down during the last five years?

Sir J. Wardlaw-Milne: I agree. There is no actual factor that will indicate absolutely correctly the situation. I do not know of any other, however, that I could give to the House to afford any

better proof that what I am saying is correct. My submission is that if there existed a boom period, there would be a large increase in prices and in the cost of living. There has been practically no increase in the cost of living. The cost of living last year increased in this country by only 3 per cent. The increase was less than that in America. It was 2 per cent. in Switzerland and in Italy 6 per cent., while in Germany, Austria and the Netherlands there was no change at all.
The point that I want to make is, that in the long-term policy which the Government in conjunction with other governments will have to consider, it is fair to say that more use should be made of some of the gold that is available, as a basis for expanding credit in the world. It is extraordinarily difficult to restore international trade. It is so easy for any of us to stand up and say that we ought all to trade together and that we ought to remove barriers, but it is extraordinarily difficult to do it. In our present position the simplest way to restore international trade is to lend money, so that people can buy your goods. If we do that, they often merely pile up debts which they cannot pay. It may well be that by the time we have made use of some of the gold which is available, in order to raise the price level in the world, the world may again be buying gold instead of selling it. Gold may become not scarce but much more in equilibrium with what the world requires for currency purposes than is the case to-day. Although I do not, like the hon. Member for East Aberdeen (Mr. Boothby), go so far as to suggest that there will be a shortage of gold, I do say that in the future it is possible that there will not be very much more gold than is required for the expansion of trade.

Mr. Boothby: I did not suggest that I foresaw a shortage of gold in the immediate future.

Sir J. Wardlaw-Milne: No. It is too early to dogmatise how much gold the world requires.

Mr. Boothby: That is it.

Sir J. Wardlaw-Milne: Gold is available in only two or three countries and used only to a limited extent in the other countries, and in some none at all is used. Therefore, it is too early to say


that there is too much gold in the world. In addition to giving the world a chance to use some of this gold for the purpose of expanding credit and raising prices, and thereby bringing prosperity to the different countries, it is necessary to consider the sad fact that the expenditure of the world in arms is to-day three times greater than ever before. I maintain that that enormous expenditure makes it very difficult to see daylight ahead. It is more than sad that after 2,000 years of preaching of the gospel of peace, the world is to-day spending on useless arms three times the amount it has ever spent. Therefore, it is not only a financial but a political question with which we have to deal—How to restore confidence in each other and peace.
My last words are to repeat what I have asked the Government to do, and that is to consider whether they cannot take steps, in consultation with the United States of America and later on, and I hope soon, in happier days, with France, to raise the price of commodities, to use some of this troublesome gold for that purpose and thus to set about tackling the problem to which the representatives of this country and the Empire set their hands at the end of the World Economic Conference, a resolution which was strongly supported by the Macmillan Committee, and which, if carried out, would do much to bring prosperity to this country and the world.

5.51 p.m.

Mr. Garro Jones: The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) has made a very useful contribution to our Debate, but I confess that his remarks have done nothing to relieve the wonder which has grown upon me during the course of this discussion, that we should be content to rely upon so inexact a science to guide us in our economic and financial affairs. I think it would be unfortunate, after the chorus of approbation which has fallen upon the ears of the Chancellor of the Exchequer, if no word of caution was uttered against undue complacency. There are two extremely disquieting features of the gold and currency situation. The first is the largely increasing production of gold, and, on the other hand the growing sense of disinclination which is to be found both in Government and private circles in many parts of the world against relying upon gold.
The production of new gold in Russia has been referred to by several speakers, but what has not been very clearly pointed out is the enormous rate at which the production of new gold is proceeding throughout the world. The amount of gold which is being dehoarded is not a subject that need give rise to any anxiety, but the amount of new gold which is being produced is undoubtedly an extremely disquieting factor in the situation. Whereas only 19,000,000 fine ounces of gold were produced in 1929 there were 35,000,000 fine ounces produced in 1935. In the last six years the production of gold in Russia alone has increased sevenfold. We may very easily find ourselves being compelled to absorb within the next three or four years gold to the value of £100,000,000 from Russia alone, and if her rate of increased production is maintained it is not unreasonable to suggest that within To years Russia will be producing and exporting gold to the value of £200,000,000. That is a serious threat to the solvency of the fund to which we are now proposing to add £200,000,000. If as a result of that enormous increase in the production of gold it became necessary, as it very well might, to devalue the vast holdings of gold which we shall then be compelled to absorb, this fund might very well find itself insolvent, and an amount of from £100,000,000 to £200,000,000 might have to be added to our national debt.
Parallel with that situation we have the increasing disinclination to hold gold which only in the last few weeks has been a very obvious feature on the part of private individuals. Private individuals do not constitute the worst part of this story, because we find that countries like Germany and Italy are becoming accustomed to operate their economic systems without the use of gold. I heard the Financial Secretary this afternoon making it a matter of boast that there were signs in many parts of the world that people and States were preferring to hold sterling securities rather than gold. That might be a matter of pride from the national point of view, but from the point of view of this fund, which is what we are discussing to-day, it is a very serious and disquieting sympton. In the meantime, we are continuing to pay a vast tribute,


amounting to £250,000,000 in 1936, to the gold producers of the world, and this may well increase to £500,000,000 in 1940 if the present rate of increase is maintained. In the light of this situation let nobody suppose that there is some wise dispensation, either at the Treasury or at the Bank of England, which can see its way clearly through the intricacies of this gold theory.
The most eminent writers on this subject confess to its complexity, and the usual signs of ignorance and knowledge on this subject are inverted, because the men who know most are the least willing to commit themselves to any specific theory. That plain fact is, and no one who has studied the question will deny it, that all the nations of the world as regards their currency and financial systems are off the rails and are attempting to control their economic system by empirical methods, which are leading to big rushes out of the difficulty by the most obvious way. This £200,000,000 is the third rust that we have made in this particular direction, and although it gets us out of our immediate difficulty, nobody can say that it carries us nearer to our goal of financial and international stability. We are not in any better situation on account of the threat that is held over our heads that if we cease to keep on purchasing this gold we shall be plunged into chaos and complete economic confusion. That threat means, in other words, that unless mother earth continues to yield up just so much of this yellow metal as will enable financiers to maintain the equilibrium of the system by which they are guided, we shall be plunged into economic disaster. I think that situation is one which calls for greater consideration and certainly greater foresight than we have yet had from the Government.
I have been reading, as I suppose other hon. Members have been reading, in the last few days, some articles on gold by, perhaps, the most eminent authority on this subject, Mr. R. H. Brand, managing director of Lazard Brothers, and a director of Lloyds Bank. If any other qualifications were needed, tie was a member of the expert committee advising the German Government on the stabilisation of the mark in 1922. No one could read his three articles, which appeared in the "Times," without being appalled at the

inexactitude and uncertainty of the system upon which, apparently, our whole financial stability depends. Mr. Brand hardly dares to make a single definite statement throughout the whole of his con tributions. I am going to read two of his statements to serve as a subject for reflection. He said:
Two questions may perhaps be asked by the layman.
Certainly, I subscribe to that statement:
The first is, why countries like the United States and Great Britain each having enough or more than enough gold, continue to buy it?
The answer is that to refuse to buy it would be to demonetize gold; there would be no common denominator between currencies, and the whole world would be thrown into chaos and confusion.
In spite of that it is a matter of serious doubt as to whether or not it is a wise policy on the part of this Government and the United States Government and other Governments to continue to buy gold, and we are confronted with various alternatives which have not been probed. One is whether it would be possible to restrict the output of gold, as though they were diamonds, as if suddenly Russia were to become in the case of gold what the Rand became in the case of diamonds, whether we could sufficiently restrict the output of gold and still maintain that confidence in it which according to the financiers is fundamental to our financial system. Bearing that statement in mind let me read the conclusions of Mr. Brand. He recognised that a policy of international appeasement is the only direction in which we are certain to find some relief from our doubts and difficulties, and speaking of this policy of appeasement he concludes:
If this policy were given every chance to prove itself, if at the end of a sufficient period it seemed clear that both the United States and this country ought to buy more of the gold than they could require for any possible contingency, yet must continue more or less indefinitely to do and sterilise a great part of the actual output, the question would arise whether the indefinite increase of these unwanted stocks was consistent with the principal aim in view—namely, the maintenance of confidence in gold.
I will do no more in this intricate discussion than to commend these articles to the consideration of the Chancellor of the Exchequer and the Financial Secretary, and to express the hope that as a result of their study they will be able to base our financial policy upon something


more exact and more sure than the uncertain foundations upon which we appear to be basing it to-day.

6.5 p.m.

Mr. Granville: I shall occupy only a few minutes of the time of the House. I think the Chancellor of the Exchequer will have very little difficulty in getting this £200,000,000 for the Exchange Equalisation Fund. Although in introducing the Financial Resolution on Monday he did not give very much away, the Chancellor of the Exchequer did say that the policy of the Government was in accord with the policy of the United States of America, and in reply to a private notice question to-day he said that it was in accord with the policy of the new Government in France. I think it is quite clear that this fund can be used for tripartite co-operation and not for currency competition. There is nobody in this House who would desire to say a word to increase the difficulties of the new French Government, and I am certain that there is no one who would wish to increase the difficulties of the American Government, although the hon. Member for Oxford University (Sir A. Salter) on Monday said that he had found opinion in America which was rather anxious because we were using this fund for the purpose of bolstering up British exports. I should have thought that what has taken place in the last 48 hours and the action of this country and the American Treasury has demonstrated that this tripartite fund can be used in co-operation although the immediate interests of this country may not escape.
We are being asked for another £200,000,000 for this fund, and those who have followed its history must now be of the opinion that it is no longer a piece of Treasury machinery but has become a weapon in international economic policy. One hon. Member has referred to the activities of the Exchange Equalisation Fund as State Socialism. I think it could be more accurately described as the Government's responsibility in minimising financial and economic dislocation. We are inclined, I think, to allow the Debate to go on and say that this is merely an addition to the Equalisation Fund to carry out operations which have been going on for some considerable time, and we are inclined to forget the enormous influence of this new potent

weapon in economic and financial policy. It can by its operation have some effect on booms and slumps and prices, and it can enable, as it is doing at the moment, the Government to weather an economic storm and even a political storm. I confess, however, that I am concerned more particularly with the day-to-day control of its policy and its operations. It is a new thing for a Government of this country to handle such an important weapon in international financial policy. We read in the Press that in the Cabinet there is a committee which considers questions of foreign affairs. I am wondering whether there is in the Government any similar method of dealing with these far-reaching questions as they are affected by the operations of this fund.
The Chancellor of the Exchequer may not be able to answer some of these questions, but I should like to put one or two. There is a great deal of uncertainty, and I think a good deal of anxiety, in the business minds of the country and in this House, as to how this fund is operated and conducted by the Government in relation to the Treasury and the Bank of England. I should like to ask whether the Chancellor of the Exchequer s himself solely responsible for all questions affecting the activities of the fund. I should like to know whether the Foreign Office and the Board of Trade are consulted on the policy and operations of the fund on those questions where they must be definitely affected. Also, I should like to know whether in the operation of this enormous sum of money, £550,000,000, the Chancellor of the Exchequer is in daily contact with questions of policy and operations, or whether they are left to the Treasury officials in conjunction with the Bank of England. This may be a lot to ask, but the Chancellor of the Exchequer, having made already certain concessions, would bring a good deal of light to some hon. Members if he would give us some indication of the Government's operations behind the scenes from day to day.
The Prime Minister last week had a great success in foreign affairs by his calm statement, which had a reassuring effect upon the European situation. As a supporter of the Government I recollect that he also had a great success as Chancellor of the Exchequer. He was responsible for creating conditions of confidence which led to a revival in this country and


gave an example to other countries. It has been said that the voice which introduced the Financial Resolution was the voice of the Chancellor of the Exchequer but the hand was the hand of the Treasury official. Perhaps what really was meant was that the voice was the voice of the Chancellor of the Exchequer, but the hand was the hand of the Prime Minister.
I hope the Prime Minister will recognise the importance of these questions and will continue to give some attention to his old love. I hope also that the Government will realise that questions which affect gold affect every business and industry of the country, and also the country's financial operations in its export trade. I hope the fund will not be operated in seclusion by mysterious figures at the Bank of England and the Treasury. It has become so big that it touches the whole policy of the Government both at home and abroad. Therefore, I hope the Chancellor of the Exchequer will be able to give us more information about what goes on and of the policy behind the fund in its day-to-day operations, and that its long-term policy will be consistent with the Government's policy and in accord with the will of this House.

6.13 p.m.

Mr. Bellenger: I desire to say only a few words because on Monday night I expressed my opinions on the Resolution. The reflections which have been passing through my mind in listening to the speeches made to-day and on Monday are these: It seems to me that the tributes which have been made to the lucidity and cleverness of the Chancellor of the Exchequer in introducing this subject are just a case of the blind leading the blind. That is obvious from the speeches which have been made, many of them full of interest and knowledge. What is this knowledge? We have had a reference to articles which have appeared in the "Times" by Mr. Brand. They are exceedingly interesting to read, but do they give us any indication as to how the Chancellor of the Exchequer in this country, or in any other country, can so base his policy that the world can be brought back to a state of sanity? There is no denying that in financial and trading matters the world is fast approaching insanity.
When we are asked to approve of £200,000,000 extra for this fund, we should approach it from the standpoint from which hon. Members opposite would approach a proposal to increase the capital of their business, because that is what we are being asked to do. We are being asked to increase the capital of this country in order to foster and increase international trade. Is it having that effect? If a suggestion is made before a board of directors that there should be an increase in capital, the directors ask what is the purpose—is it to buy more machinery, is it to make more profits? If the answer to both questions is in the affirmative, the directors are generally prepared to agree to the increase in capital. If we apply those two tests to the £200,000,000 for which the Chancellor is asking this evening, can we honestly answer in the affirmative, and say that the volume of trade of this country, or international trade, is greater or is likely to be greater? That, I venture to suggest, was the main object for which the fund was inaugurated.
No, Sir, I have come to the conclusion that all these exchange equalisation funds are pure experiments. They remind me of the days during the War when I was an artillery officer, and when we had to get on to the target. The way in which we did it generally was to get a plus and a minus, a left and a right, and gradually to approach the target, until we got what was called an "O.K." That is what is being done in exchange equalisation funds all over the world at the present time. Nobody knows whether we are going in the right direction. In France, for instance, first of all the franc went up, then it was revalued, and now it is to be devalued again. Do the financiers there know, any more than do the financiers or the Treasury in this country, or in any other part of the world, where they are leading the world? I suggest that we ought to concentrate on a policy —a stable policy, if you please—which will do away with the necessity for these exchange equalisation accounts. If we can reduce the barriers to international trade—I know there are difficulties but we have to make a start somewhere—if we can produce more confidence in the world—there is no confidence at the present time, but only fear of war, and every


country is turning its efforts to the production of munitions, which is non-productive enterprise—if we can change our direction and try to bring about increased international trade which will benefit the masses of the people all over the world, then there will be no necessity for these huge exchange equalisation accounts.
In conclusion, relative to my remark that in this Debate the blind seem to be leading the blind, I ask the right hon. Gentleman whether he can give a little more information when the time comes, not only to the Public Accounts Committee but to the whole House, as to the working of the fund, not how profits are made or how losses are made, if there be losses, but on such things as the management costs of the fund. What is the cost to the country in interest charges, and so on? We might then be able to form some balanced opinion as to the necessity for this Exchange Equalisation Account and its purpose, whether it is for the benefit of the people and whether it is keeping the exchanges stable so that we can get more international trade.

6.19 p.m.

Mr. Radford: The subject of foreign exchanges is not one of which I am in any way the master, and it is rather a disappointment to me, after the Debates on the Money Resolution and on the Second Reading, to feel that my knowledge is no greater at the end than it was at the beginning. That I attribute to my lack of powers of absorption, but frankly, in listening to the speeches of hon. Members in all parts of the House, I was struck either by the vagueness of what they said or the wonderful discretion with which they managed to hide what it would have been indiscreet to say. I do not wish seriously to criticise my hon. Friends or hon. Members opposite, but I feel that I know no more about the subject than I did before the Debates took place.
I would like to ask my right hon. Friend the Chancellor of the Exchequer whether it is possible for him to set some of my apprehensions at rest. On Monday last, my right hon. Friend stated that on 30th March, 1937, the Exchange Equalisation Account, which at that time was £350,000,000, had as one of its assets 26,674,000 ounces of fine gold which, valued on the basis of £7 a fine ounce, amounts to £186,718,000. The right hon.

Gentleman did not give that figure, but I have worked it out. Not all of that gold, at any rate, had cost the Account as much as £7 a fine ounce, as some of it was bought during the period when gold was much cheaper; but taking it at that higher figure, and assuming that the Account has no liabilities apart from its one inclusive liability of £350,000,000, there are other assets to be accounted for to the extent of over £163,000,000. I feel that that is a very serious matter.
Are those other assets foreign exchange? I cannot help carrying my mind back to about 1922, when the foreign exchange troubles of Germany were the preoccupation of Governments throughout the world. If I remember rightly, the German mark at that time stood at about 120 to the £, and I remember that the view was held by many experts—men who spent their time in international dealings—that the mark was certain to recover now that the waste of war was no longer ravaging Germany. If we had had an Exchange Equalisation Account at that time, and had taken steps to iron out either the variations in or the trend of the value of the mark, since it was on a falling basis the only form which our ironing out could have taken would have been to buy marks, and, of course, every mark that we had bought would have become valueless, for we all know the astronomical number of marks that one could buy later on for a £. We are now to borrow another £200,000,000 to add to the £350,000,000 already in the Exchange Equalisation Account. I wonder whether that will find its way into the purchase of gold? Most of the speeches in the Debate have implied that it would go to add to our stocks of gold, not necessarily by buying gold direct, but perhaps by buying foreign exchange and then realising it for gold from those countries which will honour their obligations. I am not fond of buying gold, but I would rather we held gold than foreign exchange.
I think the best news which my right hon. Friend the Chancellor of the Exchequer gave on Monday was that we are to have a sort of post-dated balance sheet submitted to us in future. I have always thought that it was an extraordinary anomaly that the House could have handed over first £150,000,000, subsequently raised to £350,000,000, and now another £200,000,000, without asking for


details as to how it would be used. Even right hon. and hon. Members opposite, who are opponents of the Government, pay a high Tribute to the Government by the willingness with which they agree to receive no details as to how the money is to be used. In making those remarks, I am not in any way speaking against the Government because if hon. Members opposite trust the Government, surely I do; and I feel sure that the fears I have expressed are groundless. Nevertheless, I feel that I should be failing in my duty if, at the close of this Debate, I did not draw attention to the fact that there must be a colossal amount of other assets. I hope that it may be possible for my right hon. Friend, when he winds up the Debate, to see those fears at rest.

6.27 p.m.

Sir John Mellor: I rise to put one question to the right hon. Gentleman the Chancellor of the Exchequer. Section 24, Sub-section (3) of the Finance Act, 1932, authorises the Treasury to use the funds in the Exchange Equalisation Account for the purpose or
checking undue fluctuations in the exchange value of sterling.
We have heard with satisfaction that the Chancellor of the Exchequer took the view that the sum could be used to damp oscillations in currency, and not for the purpose of maintaining sterling at any particular level. The question I wanted to ask the Chancellor of the Exchequer was this: Did the words in the Act,
the exchange value of sterling,
in the view of the Treasury, apply exclusively to the value of sterling in terms of foreign currencies, or did they extend to the sterling price for gold, and further, did they have any relation to sterling commodity prices?

6.29 p.m.

Mr. Lewis: I am one of those who, when this subject was discussed on previous occasions, repeatedly urged that some information ought to be given to us about the working of the Exchange Equalisation Account. When that request has been made on previous occasions, it has always been refused, and it has been suggested that if a single item of information were to be given, some frightful calamity might follow. I am very glad that the new Chancellor of the Exchequer does not take that line, and

I feel that he has given up, what I hope I may without offence describe as, secrecy for secrecy's sake. The right hon. Gentleman proposes to make a distinction between those items of information about past matters which can with safety be revealed and those items of information about current matters which clearly could not be revealed without stultifying the purpose of the fund. I must say that I have a good deal of sympathy with some of the observations made on this subject by the hon. Member for North Lambeth (Mr. G. Strauss). I hope that now that the Chancellor of the Exchequer has expressed a willingness to give us information on this matter, he will not be niggardly in the information that he gives. I am sure we could be told periodically much about the working of the fund which would not only be of great interest to hon. Members, but would have a reassuring effect on public opinion outside.
With regard to the management of the fund, we have not had any details, but we have, at any rate, seen some of the broad effects of its operation. In order to appreciate them, we must try to remember some of the difficulties which have been involved in the control of the fund since we went off the Gold Standard. There were no precedents to follow and decisions had to be taken involving immense sums of money and important interests, not only in this country, but grave international interests also. I think many hon. Members feel, and I am certain many of the public outside feel, that we ought to be grateful to those members of the staff of the Treasury who, week after week, in the face of great difficulty and uncertainty, have conducted the affairs of this fund to such good purpose.
It is, of course, difficult to please everybody. The policy of cheap money, which has been so greatly assisted by the operations of the fund and which has been so much welcomed by industry, has brought its own hardships with it. It has made things difficult, for example, for those who have to invest trust funds. Trustees who are limited by law to a small class of investments, where the creator of the trust has not given them discretion otherwise, found it exceedingly difficult to invest those funds satisfactorily. First, they were faced by the very severe drop in the rate of interest available. Now they are faced by the danger that when they realise some of these investments


made during recent years they may be faced with a substantial loss on them. I am afraid that in some cases such people placed rather too much reliance on the protestations made, no doubt in perfectly good faith, from time to time from the Front Bench with regard to the policy of cheap money. In regard to the rate of interest, it is not what the Government says but what the Government does that matters. When the Government were pursuing a policy of retrenchment and reducing the debt of the country, it was not difficult for them to maintain low rates of interest. Now that they have had to reverse that policy and go in for a policy of spending, a policy which holds out a prospect of an addition to the National Debt, it is quite another story.
I am not for a moment suggesting that the Government should be blamed for that change of policy. Circumstances with which the House is only too familiar compelled that change. I hope the Chancellor of the Exchequer will recognise all the effects which that change is likely to bring in its train and will not hold out false hopes of money at rates cheaper than it would be possible to maintain. More than that, I hope he will not endeavour to resist the economic forces which, in the long run, are bound to have play and in resisting and delaying which, he may ultimately do more harm than good. I hope that the right hon. Gentleman on behalf of the Government will recognise that rates of interest will not go back to what they were last year and that there is a probability of an increase, in the not very far distant future, beyond what they are to-day.
I particularly hope that the Chancellor of the Exchequer will give us some information on a question which has not so far been raised in this Debate. One of the principal effects of the operation of the Exchange Equalisation fund is to maintain the sterling price for gold. I am not debating for the moment, whether that is one of its principal purposes or not. It is certainly one of its principal effects and whoever may benefit or may not benefit by the maintenance of a high sterling price for gold, it is certain that gold producers benefit exceedingly thereby. We have heard references to what the Government of the United States have done or are doing in the matter of sold sterilisation, and to what we have done or are proposing to do in

that matter. There have also been references to what the authorities in France have done or ought to do, but there has been no reference, so far, to the Government of South Africa.
The present prosperity of South Africa is largely based on gold production. Taxation in South Africa depends for its yield very largely on the output from the mines and that, to a great extent, depends on the sterling price for gold. I ask the right hon. Gentleman this question on which, I think, we are entitled to an answer. What proposals, if any, have the Government of South Africa made to our Government to assist in this difficulty of the temporary surplus of gold? I use the word "temporary" because no one can say with certainty that it is otherwise. Have the Government of South Africa made any suggestion of limiting, for the time being, the output of the mines, or, if they do not regard that course as feasible or desirable, have they made any suggestion for themselves retaining in South Africa and sterilising, any quantity of the gold produced by those mines at the present time.
I think we ought to hear specifically from the Chancellor of the Exchequer whether any proposals for assisting us in this difficulty of the present surplus of gold have been made by the Government of South Africa who themselves reap so great a benefit from our efforts in maintaining the sterling price of gold. If the right hon. Gentleman is not in a position to assure us that any offers of help have been made, may I ask him further, whether upon reflection, he will suggest to the Government of South Africa that this is a matter, in regard to which, they might well help? In conclusion, may I express my personal wish to the Chancellor of the Exchequer that he may have good luck in those grave and terrible responsibilities in connection with our monetary system which now fall upon him and in particular in the management of this fund.

6.39 p.m.

Mr. H. G. Williams: From the nature of its subject-matter this Bill has opened nut a very wide range of debate. The right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood), who rose a second too late just now, will probably follow me and I shall no doubt furnish him with a certain amount of material which may


prolong the Debate unnecessarily, but I shall do my best to avoid that contingency. I am sory that the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury) is no longer in the House. He quite honestly gave expression to a view which is wrong and misleading. He expressed the hope that if I made any comment on what he said, I would not quote him inaccurately and I shall endeavour not to do so. He said, in effect, that it was a terrible mistake to have anything at all to do with gold for monetary purposes and that he would solve the whole problem by common sense. I think that is a fair summary of the right hon. Gentleman's statement.
In reply to an interruption by me, as to the basis on which he proposed to value things, the right hon. Gentleman then used the phrase "social value"—one of the cant phrases of Socialist literature. On that basis, I wonder what number of tomatoes would be required to purchase a railway ticket from here to the right hon. Gentleman's constituency. The right hon. Gentleman said that all this gold was useless, that our monetary system was inefficient and that it and our banking system simply represented so much waste. Of course the right hon. Gentleman was expressing that view honestly and sincerely but it is plain unadulterated nonsense. The invention of money was most valuable in saving the time of man. There is an incredible waste of time and effort involved in barter which can only be avoided if you discover something which is, first, a measure of value and then a means of exchange. You can use paper money for that purpose but the trouble is that no one has any permanent faith in it because there is no limit to the quantity.

Mr. MacLaren: The hon. Member is misquoting my right hon. Friend the Member for Bow and Bromley (Mr. Lansbury). I think he wishes to be fair and he will allow me to say that the question at issue at the moment when he interrupted my right hon. Friend was this: My right hon. Friend had said that there was a value attaching to things and the hon. Member interrupting asked him what would be his basis of assessment of the value of commodities. My right hon. Friend, quite rightly in my opinion, answered by saying that the labour

necessary to produce things would De the basis of assessment of their value. I submit that he did not enter into the question of currency but on the contrary proclaimed to the House that he knew so little about currency that he would not discuss it at all.

Mr. Williams: I do not think I have misquoted the right hon. Gentleman but the hon. Member's interruption saves me a certain amount of time. We have to value things somehow and it sounds easy to say that you can value them by the amount of social labour expended on their production. But that is what the golden sovereign does. That is its primary purpose. It does not touch the issue to say: "Do not have any golden sovereigns; let us do it this way," without prescribing a measure. It is like trying to measure a room without a foot rule. You must have a means of measurement and you can use paper money or you can use gold. The trouble about paper money is that it is like a foot rule made of indiarubber. You can stretch it as much as you like.

Sir Stafford Cripps: You can stretch gold also.

Mr. Williams: Yes, but it is a rubber which is rather more stiff than the other. As a matter of fact the commodity price of gold has not varied to an enormous extent over the last 25 years. There has been a certain decline since our departure from the Gold Standard because of the peculiar position of sterling, but there has not been an enormous variation. In France commodity prices are now seven times as much as they were in pre-war days, because they changed their whole basis. I suggest that, for monetary purposes, you require a commodity of this kind, if you are to have a simple system and the world is more gold-minded today than it has ever been in the past. We are not really off the Gold Standard. We are right on it, though we are not using it as intelligently as we might. The hon. Member for Bassetlaw (Mr. Bellenger) said—and I hope I shall quote him correctly—that, in finance, the world was approaching insanity. I agree there is a tendency for the world to become more Socialistic than it was.

Mr. Bellenger: That is not quoting correctly what I said.

Mr. Williams: I think it is a fair paraphrase.

Mr. Bellenger: No, it is not.

Mr. Williams: It is a reasonable explanation anyhow. The plain truth is that you must have a means of exchange and a measure of value. For that you must have some commodity which has a cost of production and if you can choose a commodity, the cost of production of which does not vary very violently, and which, itself, is imperishable, that is the most convenient commodity you can have as the basis of your monetary system.

Mr. Loftus: But surely in Sweden for several years they have maintained an absolutely stable level of prices on an index of commodities and not on gold.

Mr. Williams: With profound respect, they have not done so. It is no good saying that they have maintained the level of prices in Sweden. Does anybody say that the price of timber there is the same as it was two years ago?

Mr. Loftus: The general level has not varied.

Mr. Williams: It has. Butter has gone up, the price of wheat is higher than it was three years ago, the price of iron ore has risen, and the price of electrical machinery has gone up. These are things that I know offhand, so what is the use of the hon. Member saying that the price level in Sweden has not gone up in the last two or three years? It has gone up enormously, and their currency has maintained approximate parity with ours. Does the hon. Member mean that prices in Sweden have remained stable while our prices in this country have gone up substantially, and that the currencies have remained at the same parity? The thing is impossible, and without any knowledge of what has happened to prices in Sweden, the knowledge of what has happened to prices here proves that the statement of the hon. Member for Lowestoft (Mr. Loftus) is inaccurate.
Ultimately gold derives its value from the fact that it has a cost of production. That cost of production is represented by the maintenance of the people engaged in producing it and the profit of those whom they employ, and you may have a temporary period, such as the present, during which abnormal profits are obtained, but over a long period of time gold has a cost

of production which gradually undergoes changes in one direction as machinery is devised and in the other direction as mines get deeper. In the long run gold exchanges with other commodities on the basis of the respective average costs of production, and, therefore, gold is a convenient method for measuring the cost of journeys to Bow and Bromley, and the Gold Standard system is the most convenient thing that has ever been invented for currency purposes.
The question at issue now is, Are we going to have that system, under which we are rigidly tied to gold, or are we going to be tied more elastically? It is said that there is apparently a glut of gold, but there is not, for there is an acute shortage of gold in many European countries. If you talk to the Italians, you will find that they deplore the decline in their gold stocks, and if you talk to the Germans, you will find that they deplore the decline in their gold stocks. A great many other countries in Europe deplore it. Poland, for instance, would be glad to see a large enhancement in their gold stocks, and one of the things that we have to solve is the restoration in these countries of adequate gold reserves to maintain their credit structure and enable them to play their full part in international trade. The reason why they cannot do it is largely the fault of their own policies. Let us realise the fact. Germany, Italy, and some of these countries have inflicted upon themselves the economic evils from which they are suffering at the present time.
The hon. Member for East Aberdeen (Mr. Boothby) was, like a great many other people, very anxious that we should enter into a trade agreement with the United States of America. I never understood this enthusiasm for entering into a trade agreement with the United States. I do not know what we are going to get out of it, but one of the reasons given is that if we do not, they will depreciate the value of gold. Will they? They have got £2,000,000,000 of it at some parity or another. At any rate, I think we call it worth £2,000,000,000, and if they depreciate the price of gold, they will themselves be the biggest losers. I see not the slightest reason why we, at our expense, should bribe the United States not to do something which it would be to their disadvantage to do. I have yet to discover


any valid reason for rushing into a trade agreement with the United States. So long as they are selling us three times as much as they are buying from us, I do not see why we should make any special arrangements to facilitate the expansion of their trade—very much the reverse—and as long as they spend money—large sums of money—in subsidising their boats to try to drive our ships off the Pacific Ocean, I should be more anxious to denounce our existing trade agreement with the United States, so as to be able to put penalising duties on their goods coming into this country. That is another point of view which ought to be borne in mind, and as soon as people in the United States begin to know that not everybody here will be rushing to embrace them, the better it will be for them. I did not mean to say all these things, but unfortunately I was called upon to speak rather later than I had anticipated and was stimulated by what others said.
I want to put to the Chancellor of the Exchequer now, in the hope of an answer, a question which I put to him on Monday to which I did not then ask for an answer. To what extent have the evils from which we are now suffering been created by the existence of the Exchange Equalisation Account? That is a fair, challenging question. I think that to a substantial extent this fund is the cause of some of those evils. I did not think so four or five years ago, but I am inclined to think so now. What is the object of the fund? It is to prevent people in this country who happen to hold foreign balances or to prevent people in foreign countries who happen to hold sterling balances, suddenly, for reasons of speculation and still more for reasons of fear, undertaking panic withdrawals. The Chancellor of the Exchequer has got this great fund and now he will have another £200,000,000. I now realise the immediate purpose of it, which we did not know on Monday. It is to assist the French, and incidentally ourselves, in their present acute difficulties, and that, in my view, justifies this proposal, which, therefore, I shall vote for, but that is no reason why we should not look beyond this French matter.
I am dubious whether we are right to go on with this fund on its present scale. When the Exchange Equalisation Fund buys gold from a foreigner, it pays

him by giving him a credit, somehow or another, in some banking institution in London. In other words, we increase that quantity of what in the City is called "hot money." We build up credits in France, and the French build up credits here, we build up credits in the United States, and they build up credits here, and we thus place at the disposal of great masses of people the power to panic and upset our internal finance. If you destroyed entirely the Exchange Equalisation Account, if you could do it by a stroke of magic, without great disturbance, you would incidentally destroy, with no loss to anybody, £350,000,000 of foreign credits in London and £350,000,000 of British credits overseas, and you would wipe out this panic money that has caused the trouble and that we are now proposing to increase. That is my judgment. I have thought over my observations on this topic on Monday last, and I have discussed them with a great many people, but I have not found anyone yet who has dissented from them, and therefore, not out of any hostility to the promoters of these proposals, because I supported the original scheme in 1932, but because of further examination, I doubt whether we are doing a wise thing from a fundamental point of view.
Last night, before going to bed, I looked up the Statistical Abstract of the United Kingdom, and I found that in 1913 the Bank of England conducted its business with a gold reserve of £35,000,000. There was no other gold reserve in this country centrally available, except such gold as might have been held by the joint stock banks, which, in case of emergency, they might have been willing to place with the Bank of England.

Major Hills: There was gold in the pockets of the people.

Mr. Williams: Yes, but that was not available for meeting external shocks, and indeed as long as you had that money in circulation, you might have had every British citizen going to the Bank to cash his cheque and thus make the situation so much the worse. If we had had no gold in circulation at the outbreak of the War, and currency notes had then been in ordinary use, there would have been no suspension of the Gold Standard


at the beginning of August in 1914, because it would not have been necessary. It was the internal withdrawal of gold which was the more serious trouble. At that time the £35,000,000 was regarded as adequate, though I know the late Sir Edward Holden thought it was not quite large enough, but to-day we have £700,000,000 to do unsuccessfully what we did successfully in 1913 with £35,000,000.

Mr. Bellenger: There was more overseas business then.

Mr. Williams: It is stupid to regard export trade and import trade as more important than internal trade. The sole object of these things is to enable people to consume goods, and if they are consumed in this country, it is just as advantageous as the foreigner consuming them. It is an absolute delusion on the part of many hon. Members to imagine that export trade is more important than internal trade. It is not. The vital thing is to put our people to work and to let them have something to eat and drink and something with which to clothe themselves. There is no merit in two ships passing on the sea, one ship taking boots out of the country and the other ship bringing boots into the country. There is no merit in export trade per se. It is only a device to enable you to get certain imports that you cannot produce in your own country. But let us assume that the changed price level and the increased activities require double the gold reserve, say, £70,000,000. The Chancellor of the Exchequer now tells us that he has resources which are 10 times as great as the pre-War resources would need to have been. What is wrong? Why all this great change in our policy? Why did the "Old Lady of Threadneedle Street" handle the job without difficulty in pre-War days, and why do we now want a financial army 10 times the strength of that of 1913?
I really wonder whether we are right. I think we ought to re-examine our position, to see whether we cannot get back to the old principles which the right hon. Member for Bow and Bromley said had "gone West," though incidentally my impression, on looking at the map, is that they went East. I really think we have to challenge in our minds the whole policy which we have been pursuing in these last few years, and that policy is much

more in the direction that the right hon. Gentleman wants to walk than that in which I want to walk. The reaction will be from his path, and, therefore, I ask him to re-examine his mind on this subject, though I agree that it is a little difficult, having had his faith and his convictions for such long years, to ask him now to re-examine his mind. But it is sometimes worth while, and I appeal to the Members of this House, though, as I say, I think it is necessary to give my vote for this Bill to-day, to examine their minds and to decide whether or not the policy of these last five years is right or whether in certain respects it is not fundamentally wrong.

6.58 p.m.

Colonel Wedgwood: When I come to write the life of the hon. Member for South Croydon (Mr. H. G. Williams), who has just sat down, I shall insert the whole of the speech which he has just delivered, and then I imagine he will resort to bribery and corruption in order to induce me to cut out nine-tenths of it. At the same time I must say that I am not sure that the Exchange Equalisation Account has not encouraged and increased the "hot money" that is put into and taken out of this country, because now it can be taken out with less loss than before.
I rose to put one question to the Chancellor of the Exchequer or to the Financial Secretary to the Treasury. The Debate has been unnecessarily discursive because we had not sufficient information from the Chancellor of the Exchequer when he opened it. The other day, when he was opening the Debate, he told the Committee that they would publish, for all to see, the assets of the fund as at 31st March of this year, so that they would be three months in arrears and yet be available for the taxpayer to study. I thought that we were going to get a definite White Paper showing what those assets were. He gave us the figure of the amount of gold, the 26,000,000 ounces of gold—he gave it in ounces instead of in sterling—and, pressed by my hon. Friend the Member for Bishop Auckland (Mr. Dalton), he said he would also give the assets. By question and answer across the Table we got the promise that we should have the assets made available. He said that the amount of foreign currency we held was trifling. But that is not the point. What we want


to know is how the fund stood three months ago, what was the amount of gold in the fund, what was the amount of foreign paper in the fund, what was the amount of francs held, how exactly the fund stood, so that we might compare that with the capital value which had been put by the country into the fund. That is the important thing which ought to come out of this Debate. We are not anxious to have the information up to date; three months late will do. But we should have this information, especially if we are to have further demands for more credits for this mysterious fund.
There has been too much mystery about it. Let us have, as the price of giving this further £200,000,000, just that little bit of information, the real assets of the fund at 31st March last. That was promised, it is on record, and we ought to insist on having it either as a White Paper or in answer from the Chancellor of the Exchequer to-night, because the Exchange Account has come up against a bad snag. It is all very well using your fund to iron out these fluctuations—I am sick and tired of hearing the words "ironing out." It is just as though you can see the next fluctuation coming and by smoothing the iron over it, spending your Exchange Fund, you can avoid any fluctuations. The whole difficulty of dealing with this fund is knowing whether a fluctuation is tip and down like the waves of the sea or continually downhill. To try to ease the fluctuation of the franc and continually buy francs in order to prevent the exchange fluctuating, you are entering on the dangerous and even disastrous policy of continually buying up a falling currency. It is just such a misfortune which has been met now. The Government have been using their Exchange Fund to attempt to stabilise the franc at 100 or 110, or whatever it may have been. But it was not a fluctuation; it has been a collapse, and consequently a good deal of the Exchange Fund has been wasted, and more is asked for. We want to know that the more which is asked for is not to be used to throw good money after bad, in order still to convert the fall in the franc into a fluctuation.

Major Hills: The right hon. and gallant Gentleman knows that all the francs

which the Exchange Fund buys are redeemed in gold. The gold is earmarked at the Bank of France and brought here within 48 hours. There is no wasting asset there.

Colonel Wedgwood: There is no backing behind the French gold now. Now that the backing has gone the use of the Account has proved, I am afraid, rather a serious loss to the taxpayer in this country. Therefore, it is because one is always a little anxious as to what they are doing with this fund, that we want to know what, on 31st March last, they actually held. The Chancellor of the Exchequer has told us what weight of gold they held, and how much gold has been transferred to the Issue Department of the Bank of England. I know that that is written in their books at 85s. to the ounce. I suppose that it has not been bought by us at 85s. to the ounce, but probably far more. But what we have in the fund is £160,000,000 worth of gold. That is not all. We must have got other assets besides. The right hon. Gentleman may have a trifling amount of foreign currency or even foreign exchange, but there must be something which fills the gap between £350,000,000 and the actual value at £7 an ounce of the 25,000,000 ounces of gold in the Exchange Fund. You see, we are getting naturally a little more suspicious. In the first years when this fund was operating, all the gold we had was appreciating all the time, and we were not buying gold; we were buying sterling. Now that a change has come about the country is anxious to know that the Government are not making a heavy loss, and exactly what use the Chancellor of the Exchequer or the Bank of England—we are not yet quite clear as to which is which—is making of these enormous funds which we are putting at their disposal. The Chancellor promised my hon. Friend the Member for Bishop Auckland that he would let us have the full value of the assets as at 31st March last, and I hope that he will give us that, either now or in the shape of a White Paper at an early date.

7.8 p.m.

Sir J. Simon: The Debate has wandered over a wide field and a great many hon. Members have taken part, some of them speaking an expert language, some of them confessing to a less degree of special knowledge and some of them stating quite


frankly that these matters were very difficult to understand. My right hon. Friend the Member for Bow and Bromley (Mr. Lansbury), with his usual candour, was one of those who did not claim to be an expert and, therefore, did not seek to speak as such. He put a fundamental question, though a simple one to state: Why should there be any selling or buying of currency at all? He would prefer a world in which that did not happen. He explained further his purpose when he said that his idea would be that one set of goods should be exchanged for another set of goods. That, in its simple form, was once the method by which the world did its business. It was commonly called the method of barter, and there may be parts of the world where it still suffices. But I am afraid the truth is that the complexity of modern society would not make these methods very convenient. There have been in the past, and there are in the present, a great many people who think that one of the arguments for gold is that it provides a convenient measure, though I am not at all sure that everybody on that account would wish to return to a gold standard. I am able to offer my right hon. Friend this consolation, that the object of these exchange equalisation accounts is, at any rate, to make the exchanges steady, and if you make them as steady as you can, and in proportion as you do make them steady, then this selling and buying of exchange which he reprobates is to that considerable extent discouraged and discountenanced.
But while I say that the object of the Equalisation Accounts is to make the exchanges more steady, I find that I do agree with what was said by the hon. Member for Bishop Auckland (Mr. Dalton) when he said, "After all, all these things could do was to aim at restraining undue oscillations." I repeat what I said the other day that for my part I recognise that deep-seated, fundamental economic trends and movements cannot be held up by ingenious arrangements any more than Mrs. Partington was able to keep the Atlantic out by flourishing her mop. The hon. Member for Bishop Auckland said of the proposal, "I suspect it was the United States that suggested it." I cannot deal with his suspicions, but I am in a position to tell him that that is not so at all. We reached this conclusion on considering the

situation of our own fund and on our own view of the existing international situation. Some events that have happened since show that we have not been altogether unwise. What I did do—I hope that it is a course which we can follow regularly in matters of this sort—was to inform the head of the United States Treasury of my intention to ask Parliament to give this further authority. The assurance I received was that our action had the warm concurrence of the United States, it was recognised that it was a contribution to promoting the confidence we were trying together to increase and it was recognised to be along the line we are both of us endeavouring to pursue.
I do not think that the United States Treasury works under the same precise Parliamentary restrictions that our own fund works under. I do not think that they have to get new authority before they are able to exercise further borrowing powers and I am rather confirmed in that by an observation which I saw reported in the papers—it was not official, but it was in several papers—that on the other side of the Atlantic it was stated from the American Treasury that their own resources for the same purpose are abundant. I think, therefore, that we may take it that in this matter—and it will be a satisfaction to everybody—we are working for the purpose of promoting confidence and supporting trade hand in hand with the United States.
The hon. Gentleman made another observation about which I would like to say a word. He said that for the Exchange Equalisation Account to be useful, it must not contain only one thing. It must be a mixed bag. I certainly agree to this extent: our own Equalisation Account certainly needs to have gold and needs to have sterling. That is quite clear. We want sterling when gold is coming in; we want sterling to buy it, and hence this Bill, which is nothing more than providing the Account with the power to make use of more sterling. On the other hand, when gold is going out and it is necessary to assist in that operation for the purpose of keeping the levels steady, we want gold to send out. Therefore it is true that the Equalisation Account cannot be worked by holding one single item, although I do not know that I agree that a mixed bag would be a very good thing.

Mr. Dalton: Would it not be convenient in working these operations to hold a certain quantity of foreign currency?

Sir J. Simon: I do not deny the theoretical point. I only meant that the two essential things were those which I mentioned. My right hon. and gallant Friend the Member for Ripon (Major Hills) was right when he said that it did not follow that because a foreign currency was being sold for the purpose of substituting for it our own currency, it was that foreign currency which went into the Account. When anybody asks for sterling in place of, let us say, francs, it is always open to the Exchange Equalisation Account to provide sterling, but it does not follow that the result of the operation will he that it actually holds francs. It may very easily get gold as its asset in exchange. I added that because it is an interesting point. I hesitate to speak here with authority on these most difficult matters because a slip in a phrase might do so much damage. I hope, however, that the House will think that I have dealt fairly with the point the hon. Gentleman made. My hon. Friend the Member for Rusholme (Mr. Radford) disappointed me rather because he said he listened to the whole of the Debate the other day and at the end he still felt in a difficulty. All of us did our best to explain these maters and I venture to think my hon. Friend perhaps overlooked in my statement the other day that I said—

Mr. Radford: I attributed the blame to my own lack of understanding and not to the explanation of the right hon. Gentleman.

Sir J. Simon: We are all working at a very difficult subject and I would be the last to claim that I have said the last word on it. My hon. Friend omitted to observe my statement that the amount of foreign exchange held at the date I mentioned, namely, 31st March, was trivial. It is, of course, true that there is a large gap between the figures of gold holding and the total of the Account. It may be that I did not sufficiently explain it. The one important point to remember is that gold which has been passed from the Account to the Issue Department of the Bank, is valued at 84s. 11½d., and the excess of the market value over that figure is, in substance, an asset of the Exchange Equalisation Account.

Colonel Wedgwood: Is not the difference, not that between 85s. and the 140s., but the difference between what is actually paid for gold—120s., or whatever it is—and 140s.?

Sir J. Simon: If I have followed the right hon. and gallant Gentleman I suppose that will be so. I make that observation because I think that if my hon. Friend will look at the Debate the other day he will find it does a little clear up the difficulty. I do not know that I can undertake to go over the whole of the Debate to-day and I do not think that in the circumstances the House will expect me to make an extended reply. We have done everything in the most friendly terms but I hope that the hon. Gentleman opposite will allow me to say a word about his reference to the Governor of the Bank of England. I cannot follow him in his views about what are the proper relations between the central bank and the Government. They are important questions with a political theory and practice behind them, but they are not strictly connected with the present Debate. In fact, I think they are irrelevant. I must, however, be allowed to register my protest against what I cannot but think is an unfair form of reflection on the present Governor of the Bank of England. The person who is responsible for the use and management of this fund is myself, together with the Government, and I do not complain however severe the criticism may be. I will receive the attacks and I will do my best to answer them. The Governor of the Bank of England, a most distinguished person, is not in a position to reply, and I would sooner that such reflections were addressed to the Government which must take full responsibility and not to somebody who is not in a position to reply.
I have referred to a number of points which were mentioned. I do not want to embroider the statement I made the other day about publicity. It was made very deliberately and was accepted, at any rate in principle, by, I think, most of those who have spoken in the House, certainly by members of the Public Accounts Committee. I will, however, particularly in view of the speech of the hon. Member for North Lambeth (Mr. G. Strauss) look again at what I said the other day, and if there is, as he thinks, a certain ambiguity in what I said I will do my best to clear it up. I think,


however, that the object is well understood by the House. There should not be unnecessary mystery about these things. On the other hand, it is difficult for any one of us, however expert we are, to understand all the dangers of a demand that may appear quite reasonable. I have taken the best possible advice I can to arrive at the happy mean, and I think we ought to see how this works out—I described it as an experiment—before we come to any conclusion.

Colonel Wedgwood: Does that mean that we are not to have the full assets but only the amount of gold in the Equalisation Fund? Can we not have the real assets of that fund and the amount of gold in the issue department of the Bank of England?

Sir J. Simon: I do not want to make a further statement about it now. I understand the point which the hon. Member made and I will remember what I was asked by the hon. Member for Bishop Auckland. Perhaps the House will trust me about this, and I will take it up and seek the advice of my advisers as to what is right and proper. The Public Accounts Committee will certainly be active on the point, and I do not doubt that we shall work out a system which will be satisfactory. I do not wish to repeat the long speech I made on the Resolution, for I cannot hope to explain the matter more elaborately than I did then. I recognise that all that we are carrying out to-day is what has been described as the immediate policy as distinct from solving all the long-term difficulties. When one considers the situation which is facing a friendly country across the water at the moment, I do not know that it is a very good time for solving all the long-term problems. We must, therefore, in this matter be content to take this immediate step. I ask the House, therefore, to give a Second Reading to the Bill recognising that it is subject to this limitation.

Mr. Lewis: Will my right hon. Friend answer my inquiry about the intention of the Government of South Africa?

Sir J. Simon: I am afraid that I cannot answer that now. I have taken note of what my hon. Friend said and I will gladly consider it. There was one observation made by the hon. Member for Bishop Auckland in opening the Debate

which was very intriguing. He asserted that the position in which the French Government found themselves was very similar to the situation in which the Government of this country found themselves at the end of the last Socialist administration in 1931. Wishing nothing but good to France, I can only say I hope that it is not so bad as that. Nobody can read in the evening papers the speech made by M. Bonnet without seeing why it was that the hon. Gentleman was striving to make that comparison. Perhaps in both cases it will not be thought impertinent if I were to say that our own experience has gone to show that if these difficulties thus created have to be surmounted if expenditure has outrun revenue and if there is borrowing without proper provision for repayment, the only remedy is not in ingenious provision for the moment, but a rectification of the budgetary position and thereby the regaining of the confidence of the world.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time.

Bill committed to a Committee of the Whole House for To-morrow.—[Captain Dugdale.]

Orders of the Day — FINANCE BILL.

Considered in Committee [Progress, 10th June].

[Sir DENNIS HERBERT in the Chair.]

7.29 p.m.

The Chairman: The Chancellor of the Exchequer.

Sir J. Simon: I understood that the right hon. Member for Edinburgh, East (Mr. Pethick-Lawrence) wanted to raise a question as to how most conveniently we can deal with the new Clauses.

The Chairman: I think we can deal with that point as a question of order.

Mr. Pethick-Lawrence: On a point of Order. I have been looking at the new Clauses which the Chancellor of the Exchequer is proposing should be added to the Bill and considering the best method by which we can deal with them. I think I am correct in saying that if we proceeded strictly in the usual manner we should take the Second Reading of the first Clause which the Chancellor is proposing, and, if we passed the Second


Reading, proceed to discuss the Amendments to that Clause, and not until we had disposed of them should we have the Second Reading of the second Clause which stands in the name of the Chancellor of the Exchequer, and so we should go on until we had disposed of all the Clauses which are down in his name. I think it must be clear to the Committee, as I have no doubt it will be to you, Sir Dennis, that these Clauses hang together, that they are all part of one proposal which the Chancellor explained to us on the Money Resolution, and I therefore suggest that, with your approval, the Committee should proceed to take the Second Reading of these Clauses as a whole—that we should discuss them all together from a Second Reading aspect and, having clone that, proceed to the Amendments on the first Clause. When we come to the second Clause I suggest that we should then take the Second Reading of it pro forma, without further debate, and proceed to deal with the Amendments to it; and so on in the case of all the Clauses relating to this new tax If that were clone, it would save the time of the Committee.

7.32 p.m.

Sir J. Simon: The right hon. Gentleman was good enough to mention this proposal to me, and I have therefore had an opportunity of considering it, and subject to one clear understanding I think the suggestion is a good one. It is true that the Clauses must be regarded as all forming part of one scheme, and I think it may be added that as they are new Clauses which have seen the light since the Second Reading of the Bill, there would not be the same objection to having a Second Reading of the whole group together. I think that plan would assure that we have the best sort of discussion and get through our business more quickly, but it is clearly subject to this condition, that having had this Second Reading discussion on the scheme as a whole, we shall not have more Second. Reading discussions on individual Clauses—

Mr. Pethick-Lawrence: I said that.

Sir J. Simon: —and that we shall deal strictly then with each Amendment as it comes up. As far as I can see, the Amendments deal with concrete points which, I think, would be better discussed

on each Amendment rather than on the Clauses.

The Chairman: The first Clause which stands in the name of the Chancellor of the Exchequer imposes the charge of the National Defence Contribution and all the other new Clauses and new Schedules standing in his name have to do with what I call the machinery of the tax which is charged by that first Clause. That being the case I think it would be impossible to discuss the first new Clause without considerable references to the other new Clauses, and provided that the Committee generally assent to it, I think it would be convenient to allow the discussion on this first new Clause to be as wide as possible, that is to say to embrace anything which would be relevant either to the new Clauses or the Schedules in the Chancellor's name. I am sure the Committee will agree that after that, when we come to the further new Clauses and Schedules, we should at once read each new Clause or new Schedule a Second time, and then proceed to the Amendments. If the Committee generally approve of that course, I am sure that it will be for the general convenience of the Committee.

Hon. Members: Agreed.

Major Hills: I take it the discussion would include the Schedules as well as the new Clauses?

The Chairman: Yes, I expressly mentioned the Schedules, because the new Schedules are as important a part of the machinery of the tax as are the new Clauses.

NEW CLAUSE.—(Charge of National Defence Contribution.)

(1) There shall be charged, on the profits arising in each chargeable accounting period falling within the five years beginning on the first clay of April, nineteen hundred and thirty-seven, from any trade or business to which this section applies, a tax (to be called the 'national defence contribution') of an amount equal to five per cent. of those profits in a case where the trade or business is carried on by a body corporate and four per cent. of those profits in any other case.

(2) Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom.

(3) The carrying on of a profession by an individual or by individuals in partnership shall not he deemed to be the carrying on of a trade or business to which this section applies if the profits of the profession are dependent wholly or mainly on his or their personal qualifications:

Provided that for the purpose of this subsection the expression 'profession' does not include any business consisting wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts.

(4) Where the functions of a company or society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purpose of this section to be a business carried on by the company or society.

(5) This section shall not apply to any trade or business carried on by statutory undertakers and consisting wholly or mainly in the rendering in the United Kingdom of any of the following services, namely—

(a) the supply of water, gas, electricity or hydraulic power;
(b) the provision or maintenance of a canal, harbour, dock, pier, road, bridge, ferry, or tunnel;
(c) the conservancy of a river;
(d) the carriage of goods or passengers by railway, or the carriage of passengers by road.

For the purposes of this sub-section and any other provision of this Act relating to the national defence contribution—

(i) the expression "statutory undertakers" means any local or public authority authorised by or by virtue of any enactment to render any of the services aforesaid in the United Kingdom, and any other person so authorised who is precluded by or by virtue of any enactment from charging any higher price for those services than that authorised by or by virtue of the enactment or, in the case of a body corporate, is either so precluded or precluded by or by virtue of any enactment from distributing any higher rate of dividend than that authorised by or by virtue of the enactment;
(ii) the expression "pier" means a pier wholly or mainly used for loading or unloading goods or embarking or disembarking passengers.

(6) If the Commissioners appointed for the purposes of the Special Areas (Development and Improvement) Acts, 1934 and 1937, certify that, for the purpose of inducing any persons to establish an industrial undertaking in any of the special areas, it is expedient that those persons, in addition to being provided with financial assistance under section three of the Special Areas (Amendment) Act, 1937, should be given relief in respect of any national defence contribution which may become chargeable in respect of the profits of the undertaking, the Treasury may agree to remit the whole or any part of any national

defence contribution so chargeable.—[Sir J. Simon.]

Brought up, and read the First time.

Sir J. Simon: I beg to move, "That the Clause be read a Second time."

7.35 p.m.

Mr. Pethick-Lawrence: The main principle of these new Clauses has, of course, been already fairly fully discussed on the Committee stage of the Money Resolution, and on the general principle of this new tax I do not propose to add very much to what I have already said. I have never been particularly enamoured of this proposal, and cannot say that on a further study of it it grows more beautiful in my eyes. But whether I or other Members of the Committee like the tax or not is a question which it is too late to discuss now at any great length. For better or for worse the House of Commons has, broadly, decided that it wants to try the experiment, at any rate, of this new tax. Therefore, I think any main criticism at this hour would be rather out of place. The points I want to raise on the Second Reading Debate on this series of Clauses are more in the nature of questions to be put to the Chancellor in order to elucidate certain facts which will help us in the discussion of the Amendments. If the Chancellor or the Financial Secretary to the Treasury can give us fairly complete answers to some of those questions it may very much facilitate the Debate, and very much reduce the amount of time we shall have to spend on the Amendments.
The first set of questions I have to put relates to whether or no, and to what extent, certain organisations do, in fact, become subject to this tax. The organisations are: first the industrial and provident societies; secondly, the building societies; and, thirdly, the friendly societies. I propose to say a word about each, and will begin with the friendly societies. There has been a good deal of uncertainty as to whether friendly societies are included in the tax adumbrated in these new Clauses. Some people think they are brought in and others believe that the wording of the Clauses is such as to exclude them. The Committee will not forget that friendly societies are exempt from Income Tax, and if it is really proposed that they shall for the first time be brought into taxation it introduces a new principle and a very serious one,


and I am sure the Committee as a whole would not wish it to happen. The wording which is thought by some people to bring in the friendly societies occurs in the ninth line on page 1590 of the Order Paper containing the Amendments. I had better read the whole paragraph, which is part of the Clause headed "Computation, of profits and accounting periods."
For the purpose of this subsection the expression 'Income Tax principles' in relation to a trade or business means the principles on which the profits arising from the trade or business are computed for the purpose of Income Tax under Case I of Schedule D,
Now come the words which have caused a certain amount of alarm in the minds of friendly societies:
or would be so computed if Income Tax were chargeable under that Case in respect of the profits so arising.
It is suggested that those words bring within the purview of this tax profits that are at present entirely exempt from Income Tax, and, it is of the utmost importance that the Chancellor should explain whether that interpretation is right or wrong. If it is wrong, that really ends the matter. If he can assure us that there is nothing in the whole of these proposals that brings the friendly societies within the purview of the tax, I think we shall be satisfied and there is no reason to go further into the matter. If the Chancellor cannot make that promise, I think his action will raise a very considerable controversy, and I suggest that he can only meet it by promising to exclude the friendly societies from the taxation, for I should be very much surprised if there were any considerable section in this House who would want to bring ordinary friendly societies within the ambit of this taxation.
I come now to the building societies. Here, again: there is a certain amount of ambiguity as to whether they come within the ambit of this tax or not, and the Committee will wish to know what the Chancellor says on that issue. Building societies do a great deal of work of a very valuable kind. They have relieved the Exchequer of a certain expenditure on subsidies to house building. Building societies pay Income Tax at a lower rate than others, but that arrangement has been made for the convenience of the Treasury and the building societies and

with a view to overcoming the difficulty of the large number of small recoveries of tax which would otherwise be required. The first question, therefore, is, Are the building societies within or without the ambit of this tax?
There is another point which I will mention later which arises both in connection with building societies and with the industrial and provident societies. Income Tax is paid on undistributed profits, and—and this is particularly true of the industrial and provident societies—both loan capital and share capital are excluded in the assessment of profits to Income Tax. I think something of the same kind exists with regard to building societies. The question I wish to put, and it is one of very great importance is, If in fact the building societies and the industrial and provident societies are included within the ambit of the tax, what is the total assessment of profits on which the tax will be based? Is it to be based on the same assessment on which ordinary Income Tax is based at the present time, or are other sums to be brought into the picture, which, in the case of those societies, are at present excluded? In the one case it will mean that on top of the 5s. in the £ for Income Tax to industrial and provident societies there is, in fact, an additional is. If a very much larger figure is to be taken for profits, the amount to be called upon for the tax may mean not one-fifth, but one-half, or nearly as much as the whole of the Income Tax itself.
May I repeat those three points, because they are of supreme importance, and it is essential that an answer should be given to them? I want to know whether the friendly societies are included or excluded from this tax; in the second place, whether building societies and industrial and provident societies are in or out? If they are in, I want to know whether the net computation of profits, on which the National Defence Contribution is to be charged, is or is not greater than the computation of profits on which Income Tax is at present being charged. That is the first series of questions which I put with regard to this tax. There is a second set of questions, and when I have completed them that will be the end of what I want to say. This set of questions relates to the professions. We have been told that professional men will be exempt


from the operation of this proposal. The Chancellor of the Exchequer spoke of doctors and accountants and other professional men, but I would ask about the professional men who earn large profits which are quite different from such fees as a barrister earns by going into court or a doctor makes out of his practice. When I read Sub-section (3) of the Clause, I am a little mystified. Let me read it to the Committee, so as to bring it to the attention of hon. Members:
The carrying on of a profession by an individual or by individuals in partnership shall not be deemed to be the carrying on of a trade or business to which this Section applies if the profits of the profession are dependent wholly or mainly on his or their personal qualifications.
There are two sources of ambiguity in that sentence. One is in the words "wholly or mainly" and the other in the words "personal qualifications." In order to elicit the facts, let us be clear about the claims of people to whom the Clause will apply. Let us take, in the first place, the accountants.
Unless I am mistaken, a fairly common plan with a firm of accountants is this: There will be perhaps three men in the firm who have the full certificate of chartered accountant, and they may be the partners in the firm. If profits are made, those three men will divide them in the contracted proportions. In addition to those three men, there will be a very large number of other people doing accounting work. Some of them may be chartered accountants. In addition to them, there will be a number of clerks and secretaries. The business may be earning a profit of £5,000, £6,000, £ 10,000, £15,000, or £20,000 a year. I am not sure what the Clause means. It does not say anything about personal exertions, but about personal qualifications. Are we to understand that such a firm of accountants as I have described, in which the money is being made by the heads of the firm, all those clerks and chartered accountants who are not actually partners, will be exempt from the working of the tax? I need not elaborate other professions, but very much the same kind of organisation may exist in a firm of solicitors. You get two or three men who are solicitors—or there may be only one man—who may not do any work at all. The actual partners in the firm get the profits, but the firm is

carried on by a very large number of people who are not actually partners. I want it to be made clear whether those firms are excluded or included in the ambit of the tax.
If those people are exempt because of their personal qualifications as heads of the firm, in one case because of the charter, or whatever it may be, of the accountant and, in the case of the solicitors, of whatever it actually is called that they get which entitles them to be solicitors, what about certain other cases? How about advertising agents, architects, and a large number of others who also have businesses in which there is a considerable staff? What precisely is the definition of the word "qualifications"? Does it extend to all those different occupations, and, if so, is there to be a schedule of occupations regarded as providing the qualifications of the persons who are drawing the profits of the businesses? What is the position in this matter?
I will now come back to the words "wholly or mainly." I quite understand that if a man is doing a piece of work himself but has the help of typists or of an office, the product of his labour is not wholly but mainly due to his personal exertions, but we are not discussing personal exertion but personal qualification. What is the precise meaning of the term "wholly or mainly" in that case? If we can get an explanation on those points we shall know very much better how we stand as this Debate proceeds, and a great deal of time may be saved. The two sets of questions are of considerable concern to a large number of hon. Members.

7.54 p.m.

Lieut.-Colonel Colville: The right hon. Gentleman has asked certain specific questions in relation to the Clause which provides for the charge of the National Defence Contribution.

Mr. Pethick-Lawrence: The question about the friendly societies relates more particularly to another Clause.

Lieut.-Colonel Colville: It was pointed out by the Chair that all the other Clauses relate to the first Clause. It is clear that one of the points which the right hon. Gentleman made has particular reference to one of the other Clauses. We asked first of all whether it was the


intention, as the Clause is drafted, to bring within the scope of the text the various organi3ations he mentioned: industrial and provident societies, building societies and friendly societies. As regards the first two, industrial and provident societies and building societies, the answer is "Yes." As regards friendly societies, I am advised, although I would like to look a little more closely at the actual wording, that they are not brought within the scope of the text.

Mr. A. V. Alexander: In that case, would the Financial Secretary explain the reason for the words? If it is not intended to bring within the text bodies who do not pay Income Tax, what is the reason for including the words?

Lieut.-Colonel Colville: I told hon. Members that would like to look more closely into the wording. As at present expressed, it is not the intention that friendly societies should be brought in.

Mr. Pethick-Lawrence: Let us get this point quite clear. The Chancellor of the Exchequer has just come into the Chamber. The Financial Secretary has told us that it is not the intention of the Government to bring friendly societies into the tax and that he is under the impression, although he wants to look more closely into the words to verify it that the text does not bring friendly societies into the Bill. I hope I am not asking too much, but may I ask that, if it should be found that the words as they appear do bring friendly societies in, that we may take it for granted that the Government will themselves amend the wording so that friendly societies shall be left out?

Sir J. Simon: I have made a note of the right hon. Gentleman's point, and I will mention it to my advisers. I most certainly will want to look closely into the wording to which he has called attention. We do not want any obscurity about it, and if there is any ambiguity it will be removed.

Mr. Pethick-Lawrence: May I take it that the Chancellor is willing to do what I wanted?

Lieut.-Colonel Colville: The right hon. Gentleman went further on the subject of the professions, in which case we have not felt that there was the ambiguity

which he feared. In practice we believe there would not be much difficulty in determining whether the tax should properly be charged or not. The experience in Excess Profits Duty was that it was not impossible to determine what is a profession and what is not a profession, and cases have been decided in the courts. There are some cases in which it appeared difficult to draw the line between what was a profession and what was not, but, in general, the administration of this matter was satisfactory. It will not be difficult to define accurately what is to be included and what is not. The right hon. Gentleman will see for himself that, in cases in which professional men collect around them a large firm, in which, although the work depends to a considerable extent on the skill of the professional men themselves, who may be the principals in the firm, none the less quite a large staff surrounds them, there is gathered around them an organisation which, the right hon. Gentleman suggests, ought to be taxed. There, again, I think there is very little doubt as to the charge of the National Defence Contribution, but we do wish to except from the charge of the tax those cases where a business literally could not be carried on in the absence of the leader, on whose personal qualifications the whole thing depends—the professional man who is in fact the centre and mainspring of the work of his firm.

Mr. Pethick-Lawrence: Surely the right hon. and gallant Gentleman or his chief can give an answer on this very specific and clear point: Do the words of the Clause as they stand include or exclude the profits of a firm such as I have suggested? I have not put forward some quite imaginary or very occasional kind of firm; it is a common form in which accountants and solicitors do their work at the present time, and surely we can be told whether the words of the Clause as at present drafted do or do not include this class of people.

Lieut.-Colonel Colville: The right hon. Gentleman will agree that the matter depends very largely on the circumstances of the case. I cannot give him a definite answer, yes or no, as to whether such a firm would be included or not; it must depend upon whether it is covered by the words of the Clause, which we think are


reasonable and commonsense words. Our intention is to exclude a professional man whose removal would cause the activities of his firm to cease, and I think that the words, if applied in a commonsense way, will mean that such a firm will not be taxed.

Mr. Jagger: There are scores of firms which employ salaried solicitors, and the total income of which may be, and frequently is, quite large. Those salaried solicitors have all the qualifications that the head of the firm has, and the question is, will the earnings of such a firm be liable to the tax?

Mr. Peat: I should like to ask whether there will be a differentiation between different firms carrying on the same sort of business? Will it be a question of investigating in each case as to the capacity of the firm to carry on without the senior partner? I should like that point to be cleared up, because otherwise there may he a considerable amount of differentiation and unfairness.

Lieut.-Colonel Colville: I do not see that there is the difficulty which the right hon. Gentleman suggests. If the firm depends on the personal skill of a professional man who is at its head, it may be argued that it would properly be excluded if his removal would in fact mean a cessation of the activities of the firm. The difficulties which the right hon. Gentleman raises are not difficulties which were experienced before, or, if so, they were found to be easily surmounted by the ordinary inquiries that were made—when the Excess Profits Duty was being applied—in deciding what was or was not a profession, and what business was or was not liable to be taxed. I think that the difficulties, which the right hon. Gentleman raises, of determining in a commonsense way whether the tax should be applied, are not so great as he imagines.

Mr. Pethick-Lawrence: The difficulty seems to be so great that neither the Chancellor of the Exchequer nor the Financial Secretary has the faintest idea on which side of the line these firms would come. If it were perfectly clear that they were in, the matter would be simple, but the Financial Secretary says he does not know whether these words would or would

not include the most common form in which these professions are carried on.

8.7 p.m.

Sir J. Simon: I wonder whether the right hon. Gentleman would do me a kindness? Everyone can see what has happened. It was not expected that an answer would be given immediately, and I was not here. I am not complaining, but I wonder whether the right hon. Gentleman would do me the kindness of stating to me what his supposed difficulty is? I have not felt any difficulty in my own mind in defining these words, and I hope to be able to give him an answer. I am sorry I was not present to hear what he said, but, if he says that I am sitting here and cannot answer his question, I think it should perhaps he repeated.

Mr. Pethick-Lawrence: The point I put to the Financial Secretary was that a very common way in which accountants' work is carried on is for there to be two or three partners in the firm who are chartered accountants, or have some form of accountant's certificate. They have connected with them a considerable office, in which there may be chartered accountants who are salaried, and, in addition, other men working at accounts, together with typists and clerks—a large staff; and as a result of the whole business they make a profit which may be £5,000, £10,000, or even considerably more, in the course of the year. That is not purely an imaginary figment of my mind; it is a very common way, as I am sure the Committee recognise, in which accountants' work is carried on. The same is the case with solicitors. I asked the Financial Secretary whether the words of Sub-section (3) of the proposed new Clause means that that type of firm will be liable to the tax, or whether it will be exempt from the tax. That is a perfectly straightforward question, and I thought that probably I should be able to get a definite answer.

Sir J. Simon: That is a part of the provisions with which I have been personally concerned and perhaps I may be allowed categorically to state the position. The Committee will observe that Sub-section (2) of the Clause deals with:
the trades and businesses to which this section applies";


but the test of each case is not how particular individuals are engaged, or on what terms they serve; the test is what is the business. If the business is the business of an accountant, carried on, as the right hon. Gentleman says, by many people, some of whom May be fully qualified and some of whom may be clerks, it is still the business of an accountant. There are many such firms in London and in the Provinces. Exactly the same is true in the case of a firm of solicitors. Very often a firm carrying on the business of solicitors has on its staff fully admitted solicitors, managing clerks who may or may not be admitted solicitors, and a number of other clerks, all part of the organisation. In this case the test is what is the nature of the business. Sub-section (2) of the Clause says:
Subject as hereafter provided, the trades and businesses to which this section applies are all trades or businesses of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom.
Then Sub-section (3) makes an exception to that. It says:
The carrying on of a profession by an individual or by individuals in partnership shall not be deemed to be the carrying on of a trade or business to which this section applies if the Profits of the profession are dependent wholly or mainly on his or their personal qualifications.
I have no doubt whatever that, if you have a firm of solicitors, or a firm of chartered accountants, that would be a case where the business they are carrying on is a business which depends wholly or mainly on personal qualifications, and is not in the possession of large sums of capital. Consequently, I answer quite categorically that firms of solicitors and accountants are not within this tax. The same is true of a large number of other professional occupations. I am asked how I determine where to draw the line, and that, of course, is a perfectly clear question, and a very important question. It might be done by attempting to make a list. That is a conceivable way, though I do not think it would be satisfactory, because I do not believe you could draw up a complete list, and there would be no end of argument as to whether a particular item should be included or excluded. That is not what the Clause does, and it is not the way in which it was done by Parliament before. Parliament

did it before exactly in the way in which it is to be done now, and I can tell the Committee from my own knowledge that it then worked quite well. It is true that there were a few cases in which there was a matter of dispute or argument as to whether the business was within the exception or not, but the number of such cases was very limited. In the vast mass of cases there was no dispute about it at all, and I have in the drafting of the Clause reduced the number of cases of doubt by adding these words at line 15:
Provided that for the purpose of this subsection the expression 'profession' does not include any business consisting wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts.
That was because it might otherwise be suggested that stockbrokers were not within the tax, or that insurance agents were not within the tax, though in my view they ought to be, because they are really carrying on what is no doubt an important class of business, but is a business as distinguished from what may be regarded as a professional occupation. I hope I have given a perfectly clear answer to the right hon. Gentleman.

Mr. Jagger: I understand the right hon. Gentleman's answer with respect to accountants, but I am not clear as to what would be the position of those accountants who act, for instance, as Income Tax experts.

Mr. Kelly: May I ask what would happen in the case of a consulting engineer engaged in advising, say, as to the supply of machinery, and seeing that the right people receive orders for the work? Would the provision as to the making of contracts apply in such a case? Again, there are architects who might be engaged in designing a building, and also in giving out the contracts.

Sir J. Simon: I will certainly endeavour to answer the hon. Gentleman's question explicitly. I should have thought from the descriptions he has given that such cases would be included, but I wish the Committee clearly to understand that, if they accept the Clause in this form, it will necessarily mean that there may be borderline cases. The hon. Member for Clayton (Mr. Jagger) mentioned the case of the man whom he described as an Income Tax expert; perhaps he might be


described alternatively as an adviser on how to avoid paying Income Tax. As a matter of fact, a case of that sort did arise in the days of the Excess Profits Duty. It was decided in the courts, and the decision was that he was not a professional man.
There is one implication in the idea of a profession which perhaps I might be allowed to mention now in completing my argument. I think the courts have said, in the cases with which they have had to deal, that the idea of a profession is that a man has been prepared to do his work by a course of systematic study—academic study or something of the kind. A doctor is called a professional man because he has gone through a medical course, but the cheap-jack at the fair would not be called a professional man, whatever his qualifications might be. In the same way, you call a solicitor, a barrister or an artist a professional man, partly because, before he engages in what we may call his daily life, he has gone through a course of training. There is good sense in that, because it means that the capital that he is employing is in a special sense the capital inside his head. He has accumulated a lot of special knowledge, as a doctor has, and that is the contrast between the idea of a profession and the idea of a commercial pursuit. It is easy to imagine a case and work it up to the margin and put the Chancellor of the Exchequer on the boundary line and ask which side it is on. My answer is that on the whole this method has been found to work perfectly well before, and I think we had better rely on it again.

Mr. Alexander: Will the right hon. Gentleman answer the other question?

8.16 p.m.

Lieut.-Colonel Colville: Following on the arrangement that we made to take all the Clauses together, I understood that we should have a Debate lasting some little time, and that a reply would then be given to all the points. My right hon. Friend wished to deal with this very important reply himself, and for that reason the right hon. Gentleman will understand what has happened. Many of the points will occur again on the Amendments and can be discussed in detail, but when the right hon. Gentleman asked this question, I had in mind that we should have a Debate of some

duration before we dealt with the general replies. He asked me whether certain organisations were within the tax or outside it, and the basis on which it would be charged. The basis of charge for industrial and provident societies is the trading profit, less loan interest. The basis of charge for building societies is income, less expenses and loan interest, the same income will be charged to National Defence Contribution as is chargeable to Income Tax. The industrial and provident society pays Income Tax direct on its undistributed income, and the Income Tax on the distributed income is collected from the members. The building society, on the other hand, pays at the full rate on the undistributed income, and pays a composition rate on the income distributed as interest on share capital.

Mr. Pethick-Lawrence: In which way is the new tax going to be paid?

Lieut.-Colonel Colville: I have told the right hon. Gentleman the way in which the charge at present applies. The cooperative society is assessed to Income Tax like an ordinary trading company, except that the amount of the profits distributed as interest or share capital is taxed in the hands of the recipients and not by way of deduction. The charge to National Defence Contribution will apply to the trading profit, less loan interest.

8.20 p.m.

Mr. Alexander: We are gradually getting at the truth of the matter. It now becomes fairly plain that the pledge that was made by the Financial Secretary when he replied to the Debate the other night has not been met. The pledge was that the whole of the assessments to be carried out for National Defence Contribution were to be on the basis of the Income Tax. Now it seems quite clear, from the two explanations which have been given up to date, that there are certain bodies brought within the ambit of National Defence Contribution which will be charged on a differential assessment from that on which they are charged in respect to Income Tax.

The Deputy-Chairman (Captain Bourne): I think we shall get on better if the Financial Secretary is allowed to complete his speech, and then the right hon. Gentleman can make his observations.

Lieut.-Colonel Colville: I simply rose to answer the question put by the right hon. Gentleman. I have finished what I was going to say.

Mr. Alexander: I rather deprecate the interruption, with all respect, because I have been particularly patient in listening to the answer.

The Deputy-Chairman: The right hon. Gentleman will forgive me. I did not understand that the Financial Secretary had finished his speech. There have been a good many interruptions.

Mr. Alexander: I think it is fundamental that the Chancellor of the Exchequer should address his mind to this point that, if the Government in 1933, in bringing for the first time certain corporate bodies like industrial and provident societies into assessment for Income Tax, then settled what they believed to be the actual, just basis upon which those bodies should be taxed for Income Tax, if they are keeping their word to the House in regard to the application to the new tax it should be made clear, either by a change in the wording or by a specific pledge that it will be changed, that those societies will not be assessed upon a larger sum than their present assessment in relation to Income Tax, because unless the Chancellor does that he is treating the industrial and provident societies, and will in certain respects be treating the building societies, in an entirely different manner from that in which he is treating the ordinary trading company. It is clear from a number of detailed examinations that I have made already from the last available accounts of bodies of this kind that, whereas in the case of a company assessed to Income Tax under the existing Income Tax law, they will never in any case pay more than one-fifth of the standard rate of Income Tax as National Defence Contribution, industrial and provident and building societies will pay substantially more than a fifth of the standard rate of Income Tax, and that in spite of the fact that their recognised position under Income Tax in the past has been built up and agreed to by successive Governments because of the nature of their composition, their personnel, the standard of income of the shareholders or members as the case may be, and, therefore, the actual imposition in these cases of National Defence Contribution will be

at a higher rate than is placed upon large and important firms and companies.
I cannot believe that that is really the intention of the Exchequer. With his great personal experience in taxation cases and the views that he has expressed in the past, I do not believe that the Chancellor of the Exchequer can possibly intend that that differentiation shall take place. It will enormously facilitate the Debate on later Amendments on the Clause if he will make it clear now that it is not intended to put National Defence Contribution at a higher percentage rate upon those bodies than is put upon all other trading partnerships or companies, for all the figures that I have gone into prove conclusively that that is what this Clause is doing.

8.25 p.m.

Mr. Peat: There are one or two questions which I should like to ask the Chancellor of the Exchequer on the proposed new Schedule with reference to wear and tear allowances. The Schedule is not such a simple document as one might expect, and I would like some definite assurance that losses carried forward will include wear and tear allowances which have not been dealt with for Income Tax purposes. I would like that to be made quite clear, if possible. I would ask another question which relates to the principle which, I believe, has been accepted, that losses made at the end of the five-year period will be allowed as a deduction from the tax already paid for the years' accounting periods which come before the end. That is to say, if profits have been made in the first three years of the five and heavy losses have been made in the last two years, will those losses be recovered from profits taxed in the first three years? I would very much like to have these points cleared up.

8.27 p.m.

Sir John Haslam: I rise only to endorse what the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) has said in regard to the incidence of the taxation on building societies and industrial and provident societies. I am not going to enter into the controversy as to whether these societies should be taxed on the whole of their profits—I do not think that this is the right time to do so—but I regard it as morally wrong to bring in by a side wind another method of taxing these societies. In the last Parliament


I voted for and approved the taxation of their reserve profits, and I think that, that could be justified, but I do not see how it can be justified for a temporary tax of this description—and it has been emphasised over and over again that it is only for a short period of years—that under a fresh system of taxation they should pay more during the five years' existence of the tax than other sections of the community. I believe that they ought to be included because they are benefiting like every other industrial concern by the revival of internal trade.

The Deputy-Chairman: There is a definite Amendment to leave out the industrial societies. The point which the right hon. Member for Hillsborough (Mr. Alexander) made was not the question whether they should be exempt or not, but whether, under this Clause as drafted, they come into the scheme on the same terms as other businesses. If we start discussing whether they are to be exempt or not, I may find myself in a difficulty in selecting Amendments, and therefore I think that we had better leave this matter.

8.29 p.m.

Mr. Kelly: I do not want to add to the questions which have been put, and which I hope will be answered, but there is one thing which I have net been able to understand in Sub-section (5) where you are exempting certain statutory undertakings such as water, gas, electricity and so forth. I have tried to reason with myself why you have left out such things a s markets—

The Deputy-Chairman: There is an Amendment on the Paper dealing with that specific point, and we had better wait until it is reached.

8.30 p.m.

Mr. Barnes: The replies that we have had from the Treasury bench have opened up rather an unsatisfactory situation. I should like, in reply to the Financial Secretary, to stress the fact that, under the 1933 assessment, in the case of industrial and provident societies, the payment of interest on share capital was taxed in the hands of the recipient. The point which my right hon. Friend the Member for Hillsborough (Mr. Alexander) has made is that under this proposal, if we understand the comments of the Financial Secretary, that practice will not prevail. It should be borne in

mind that under the old method of assessment the vast majority of the members of co-operative societies, possibly 70 per cent. or 80 per cent. receive that interest as individuals, and that it is not charged for Income Tax because their incomes would be below the assessment. The thing which is disturbing us now—and it is a point of equity which will appeal to every Member of the Committee—is that the change now proposed in this case will put the whole of those interest payments together, and a large proportion of the interest on share capital which escaped under the 1933 assessment will be brought in under this new proposal. That will mean inevitably that the co-operative societies will not be paying 5 per cent. but possibly, 7, 10 or 15 per cent. with regard to the share interest now classified for taxation. That is a point to which we should like the Chancellor of the Exchequer to give his attention.
Another point I should like to stress is the inequity of the position now that the whole scheme envisaged in the first new Clause has been brought out. The Chancellor of the Exchequer's own definition in this case, as I understand it, is that a business, the head of which can be classified as a professional man, will not be charged the new National Defence Contribution tax. That includes a firm carrying on the business of chartered accountants. It is not the case that the individual person is practising in the sense that he is carrying out the work himself. I understand that under the definition of the Chancellor of the Exchequer, a firm of architects, engaged in placing contracts and drawing profits from their particular business escape this tax. On the other hand, a firm of advertising agents which is classified as a business would not be exempt, and yet as a matter of fact, you have the same main basis from which profits or the income of the firm is derived. It appears to be utterly indefensible that a tax proposal designed to secure a contribution for National Defence purposes should let out wealthy professional concerns which are in fact businesses. I entirely repudiate the definition of the Chancellor of the Exchequer that a person who passes through an educational course for a business which is classified as a profession is in a different category from the person who is trained and educated for a commercial purpose,


or any other person whose occupation is classified as a business. The whole thing appears to be thoroughly inequitable.
I would draw the attention of the Committee to the inequity that will arise under the Sub-section that excludes public utility corporations. I wish that my right hon. Friend who put, these queries from these benches had also addressed points of this character to the Chancellor of the Exchequer. Under Sub-section (5) businesses carried on by statutory undertakers are exempt from this particular tax. It is equally essential that either the Chancellor of the Exchequer or the Financial Secretary should give the same kind of definition of the exemptions under this Clause. May I support my theory by quoting some examples in order to ascertain whether this exemption covers this type of undertaking?

Lieut.-Colonel Colville: Will the hon. Member give the Sub-section?

Mr. Barnes: It is Sub-section (5) which says:
This section shall not apply to any trade or business carried on by statutory undertakers and consisting wholly or mainly in the rendering in the United Kingdom of any of the following services, namely—.
It then details the services, and it is category (d) to which I would call attention:
(d) "the carriage of goods or passengers by railway, by the carriage of passengers by road.
I have looked into the earnings of companies of this description and I understand that any company of a statutory type carrying public passengers will be exempt from this Clause. If not, I should like to be informed from the Treasury Bench. Let me quote the earnings of a few companies. There is Tilling and British Automobile Traction Limited. This is a holding company, controlling 18 transport companies throughout the country. Their fleets of omnibuses and coaches exceed 7,000. The four railway companies are all interested in these various companies. Take the profit record of this particular concern which, I gather, will be exempt from the tax because it is a statutory undertaking and engaged in public road transport. From 1924 to 1932 this company paid 10 per cent. In 1933–34 it paid 10 per cent. and distributed a capitalised bonus of 25 per cent.

In 1935 it distributed 10 per cent. and in 1936 10 per cent., with a capitalised bonus of 33⅓ per cent. Then there is Thomas Tilling as a separate company. In 1923 they paid 15 per cent., with a bonus of 30 per cent.; in 1924, 15 per cent.; in 1925, 15 per cent. and a tax free cash bonus of 33⅓ per cent. Later in the same year they distributed a capitalised bonus of 66⅔ per cent. From 1926 to 1930 their profits rose by 15 to 20 per cent. and all the way through, down to 1936, their dividends averaged 15 to 20 per cent., with periodical distributions of capitalised bonus.
The position that I want to put to the Financial Secretary and the Chancellor of the Exchequer is this: Are we to understand that under Sub-section (5) companies of this description are to be exempt, when they are paying profits of 10 to 15 per cent.? I could quote if necessary many gas companies whose dividends are 7, 9 and 14 per cent. Are they to be exempt, while co-operative societies and building societies, which are much more of the public utility type of organisation than this kind of undertaking, seeing that their membership is largely composed of wage-earners who are not classified in the ordinary way to the payment of Income Tax, are to pay? Is the type of company to which I have referred to be excused while co-operative societies are to be brought in, as my right hon. Friend the Member for Hillsborough (Mr. Alexander) pointed out, for an additional burden over and above the companies that are to pay? It is essential that not only the points that have been raised earlier but particularly the differential assessments of co-operative societies and of public utility concerns should be dealt with.

8.41 p.m.

Major Hills: Perhaps it would be convenient if I raise on the new Clauses a point on which I should like an explanation. It is a very important point. It deals with the profits of life insurance companies that are assessable to the National Defence Contribution. As I read the law and the construction of the new Clause, the profits of a life office reserved or allocated to policy holders or annuitants are excluded from the new tax. That means that if those companies put by reserves for the purpose of securing the policies, or pay part of their


profits as a bonus to the assured, then that share of profits does not come into assessment for this new contribution. The Income Tax Act of 1918, as applied by the Finance Act of 1923 to insurance companies, comes into consideration here. I have on the Order Paper an Amendment which raises that point. That Amendment is: In line 10, at the end, to insert:
Provided that the principles laid down in Section sixteen of the Finance Act, 1923, shall apply to life assurance business assessed or deemed for the purpose of the national defence contribution to be assessed under Case I, Schedule D.
That Amendment is, I think, nothing more than declaratory of the law. As I read the Finance Act of 1923, all these great reserves of these companies are free from Income Tax, and therefore free from the National Defence Contribution. I need hardly remind the Committee that on those reserves depends the security of the hundreds of thousands of policy holders who are insured in these companies. Therefore, the point is one of immense importance.
It has been settled for the last 14 years that in the case of a proprietary company, that is a company where part of the profits go to the policy holder either as addition to reserves or as bonus, and part to the shareholder, then only the part that goes to the shareholder or is placed to reserve for the benefit of the shareholder, is subject to Income Tax. I take it that the same principle will apply in regard to the National Defence Contribution. In addition to the proprietary companies, there are the mutual companies. In the mutual company there are no shareholders. All the profits belong to the policy holders and form part of the reserve for the policies. If I read this new Clause and the Schedule aright I believe that all the so-called profits, which are in reality the income received by the mutual companies are free from the National Defence Contribution. Certainly all their investments are free. Sub-section (5) says:
Income received from investments shall be included in the profits in the cases and to the extent provided in this paragraph, and not otherwise.
And it goes on to say that all investments are included except income to which the persons carrying on the trade or business are not beneficially entitled. In the

case of the mutual companies the investments belong to the policy holders, and the company which carries on their business is not beneficially interested in the investments. I do not know whether I can get an answer on these points today but they are of immense importance to all policy holders; first that the reserves should be kept intact, and that in the case of a mutual company which has no shareholders and pays no dividends, but which puts all its funds to the benefit of its policy holders, their so-called profits—really it is income and not profits—should be free from the National Defence Contribution.

8.47 p.m.

Sir J. Simon: I am obliged to my right hon. and gallant Friend for mentioning the point. It is an important one, but I think he will agree that it is a point which naturally arises on an Amendment to the Clause. Indeed, the right hon. and gallant Member has put down an Amendment. One of the disadvantages of having a general discussion is that we may sometimes discuss one particular matter more than once. But I will relieve his mind now and give him this assurance, that as regards life assurance companies the amount of profit allocated to or reserved for policy holders and annuitants is not charged to Income Tax on the company, and it will similarly not be included in the company's profits for the purposes of the National Defence Contribution. I believe that I have satisfied the right hon. and gallant Member. I do not suggest for a moment that the points raised by the hon. Member for East Ham, South (Mr. Barnes), and the right hon. Member for Hillsborough (Mr. Alexander) can be dismissed as Committee points. They are general points which naturally arise on the Second Reading of the Clause, although a discussion of details will arise at a later stage. Let me give as clear an answer as I can now. First, as to the point put by the hon. Member for East Ham, South, in regard to the operation of the New Clause in the case of public utility companies.
The view we took was that a public utility company, or in some cases a company established by law which was rendering that kind of service and was by law restricted as regards the profits it distributed or the charges it made, was


a class of case which ought to be exempted, because they are not free as others may be to make what profits they please or charge what they like. I agree with the hon. Member that when we examine the Clause in detail it may be that we shall find instances in which the law has not sufficiently restricted their profits or limited their charges, but the hon. Member will see that in regard to these cases we have put sufficiently severe restrictions on the enterprise. The hon. Member quoted a possible instance, but I do not see how we can frame the Clause except on the principle of exempting this class of case. When we examine the details I shall be willing to consider the point, but I do not think we can very well frame this tax on the principle that we are going to look up some particular case which the right hon. Member has quoted and say that it is or is not a strong case for being dealt with in this way. We must have some definition, some rule which can be applied as a test as to whether a company or a public utility company does or does not get exemption. The right hon. Gentleman quoted some cases which I should have thought would be within the exemptions, but I will look at them again.
The other point raised was, to put it broadly, the case of the co-operative societies. Let me put this matter as clearly as I can. It is quite true that if you go back some years the co-operative societies were not regarded by the Income Tax laws as making a profit, and they were excluded from the tax, but the reason was because of the particular character of their organisations, and the way they manage their business. But Parliament has seen fit to amend our Income Tax laws in this respect, and we are bound in this matter to treat co-operative societies as being societies which do make a profit of a sort which might come within the tax. The issue will be raised more pointedly on an Amendment and at the moment I am merely explaining the matter to the Committee. The right hon. Gentleman does not now, I understand, make so much of that point as he does of the suggested differential treatment.
Let me deal with this point as clearly as I can. Take the case of an ordinary trading company, not a co-operative society or a building society. Suppose that

this trading company makes £10,000, which is regarded as profit for the purposes of Income Tax. In the case of that trading company it would be assessed as profit, and it would pay Income Tax on the whole of that £10,000. Having done so it would distribute it to its shareholders—they may be very small people—and it would be entitled, when it declared its dividend, to pay a dividend less Income. Tax because it was paying it out of a fund which had already borne the Income Tax. That is an ordinary business arrangement as regards a limited company. What would happen to that trading company under the National Defence Contribution? It will pay a National Defence Contribution on the £10,000, and to that extent undoubtedly its ordinary shareholders will suffer because there will not be any deduction from the dividend that is paid to the ordinary shareholders in respect of the National Defence Contribution. Therefore, the shareholder, when he receives his dividend, will receive it out of the fund which has been diminished by the National Defence Contribution. That is what happens in the case of an ordinary company. I ask the Committee to observe that that will be so even though the shareholders, or some of them, are people who are receiving only a small income.
Let me now turn to the co-operative societies. Let us suppose that a cooperative society also makes a profit of £10,000, and that £5,000 of that profit is paid to the members on their share capital and the other £5,000 is put to reserve. The mechanical arrangement that is made for collecting the tax there is that the co-operative society will pay Income Tax direct, not on the £10,000, but on the £5,000. The reason for that is that the other £5,000 which is paid away in dividend and which they are entitled to deduct from their direct assessment, is paid to members and still remains, in the hands of members, liable to Income Tax. It is true that in the case of an ordinary company also many of the shareholders may have a very small income, but the fact is that in the case of the cooperative society the £5,000 that is paid away in dividend to members is liable to Income Tax, just as much as the other £5,000.
If the Committee have followed me closely, they will see that that is the


principle which underlies this tax. The co-operative society must be taxed on its £10,000 for this tax just as much as the ordinary trading company is taxed on £10,000. The reason in both cases is the same, namely, that this tax is a tax on the profit that is made by the enterprise itself before there is any question of distribution, and there is no provision here for deduction at the source or for any recovery on the ground of exemption later on. That is the explanation, and I hope I have made it plain; it is as clear as daylight to me. That is the reason why a co-operative society which makes a profit of £10,000 and a trading company which makes a profit of £10,000 will both, in fact, pay the same amount of National Defence Contribution. The distinction which was drawn by the right hon. Gentleman opposite is really based, I will not say on a fallacy, because that would be too strong a word, but on a view of the situation which mistakes the merely mechanical method by which Income Tax is collected from a co-operative society, for some principle of law. The principle of law is exactly the same in the two cases. You make £10,000 profit, and you pay tax on it.

Mr. Alexander: I hope the right hon. Gentleman will allow me to submit to him privately figures which demonstrate conclusively that on the assumptions which he has made before the Committee, co-operative societies will be mulcted of a heavier percentage of National Defence Contribution than any ordinary company, on the basis of what the National Government laid down in 1933 as the rules of Income Tax to be applied to co-operative societies. If I do that, I hope the right hon. Gentleman will examine the figures.

Sir J. Simon: I am not speaking on this matter in any heated way, but am merely trying to serve the Committee by stating what is the arrangement contemplated here. If the right hon. Gentleman feels that he has some material that he would like me to study, I am at his service at any time, because I am sure the Committee as a whole would wish us, as far as we can, to do what is just in this matter. It may be regarded as an objection to the whole tax, but I must repeat that this form of tax does not give relief to the individual component of the

enterprise merely because that individual has a very small income. In the case of the Income Tax, we have arrangements by which people get exemption and allowances for wives, children and so on, but one cannot make a simple tax and introduce all those complications. I want the Committee frankly and openly to face the fact that what we are doing here is to put this contribution upon businesses, whether firms, individuals, co-operative societies or building societies, by reference to the total profit which they, as institutions, make. The only way in which we can relieve the smaller enterprises is by saying that we shall not seek to put this charge upon any such institution if the total amount is less than £2,000 and that we shall reduce the charge if the total profit is less than £12,000. A small co-operative society in a small town or a small building society would get that advantage. But I tell the Committee frankly that that does not mean, either in the case of a company or anything else, that the individual who is possibly himself in a small way will get special relief, because the total sum that would fall to be distributed would be so much, less the tax.

Mr. Barnes: Why did the Treasury make that arrangement to tax interest in the hands of the recipient? Was it not because they realised that the vast majority could be claimed back, and if that practice has been altered here, does it not increase the ratio payment on the profit?

Sir J. Simon: If that point is brought to my attention by the right hon. Gentleman, I will study it, but the answer to the hon. Member is that it may be true that in the Income Tax machinery special arrangements are made on the ground that many of the recipients of the dividend would be people who, because of their small income, would claim the tax back.

Mr. Barnes: The majority would.

Sir J. Simon: It may be so. I am pointing out to the Committee that this form of tax is bound to be directed to the institution itself. I agree it is a rough method, but we have to accept it. As regards building societies, although the details are not quite the same, the principle involved is the same, and I do not think I should help the Committee


by going over the same thing again in connection with building societies. I hope I have given a clear explanation to the Committee. I recognise that I still have to await any criticisms about it and the information which the right hon. Gentleman will give me, but I hope I have made it plain to the Committee.

Question, "That the Clause be read a Second time," put, and agreed to.

9.4 p.m.

The Deputy-Chairman: Before the hon. Member for Huddersfield (Mr. Mabane) moves his Amendment to line 5, I notice that he has a large number of Amendments down to another part of this scheme, and I am not quite clear whether they are consequential upon this Amendment or not. This Amendment might, to some extent, stand by itself, but equally the proposal to leave out these words at the beginning of the Clause might be part of a general scheme including the other Amendments. I should be obliged if the hon. Member will tell me.

9.5 p.m.

Mr. Mabane: I thank you very much, Captain Bourne, for what you have said. The Amendment which I intend to move in line 5, to leave out from "profits" to the end of tie Sub-section has a complementary Amendment later on the Paper. That complementary Amendment is in line 116 of the proposed new Schedule (Adaptations of Income Tax provisions as to computation of profits) and proposes to insert the words:
person either solely or in partnership there shall be allowed a deduction in respect of salary or remuneration to such person or partners not exceeding fifteen per cent. of the profits arising from the trade or business in that period (computed after making any deduction in respect of such salary or remuneration) or one thousand five hundred pounds, whichever is the greater, so, however, that the deduction shall in no case exceed fifteen thousand pounds, and in the case of a trade or business carried on in any chargeable accounting period by a.
I think it would be convenient if I were allowed to treat those two Amendments together. This Amendment to line 5 of the proposed new Clause, if moved alone, would mean one thing, but if moved together with the complementary Amendment to which I have referred, it would mean quite another thing.

The Deputy-Chairman: The hon. Gentleman has clown two Amendments to

the proposed new Clause (Exemption and abatement in respect of minimum profits) which comes later on the Paper. I am not clear whether those Amendments are meant to be consequential on the Amendment which he is now about to move, or whether they raise a different point.

Mr. Mabane: I do not propose to move those Amendments, in view of the opportunity I now have of moving the present Amendment which really effects something like the same purpose.

The Deputy-Chairman: That is the point which I wished to have made clear.

Mr. Mabane: I beg to move, as an Amendment to the proposed Clause, in line 5, to leave out from "profits" to the end of the Sub-section.
Merely to leave out these words would, apparently, have the effect of putting a private firm or partnership on the same basis as a limited company, in that it would have to pay 5 per cent. of its profits instead of 4 per cent. as is here provided. But when account is taken of the complementary Amendment to which I have already referred, the effect is different. I submit that this is an important Amendment. Its purpose is to remedy what I regard as an injustice in these Clauses as they stand. In my view, the Clauses as they stand put the private firm or partnership in a worse position with regard to the National Defence Contribution than the limited company, and particularly in a worse position than what are here called director-controlled limited companies.
The Chancellor of the Exchequer, in moving the original Resolution, referred to the bringing within the ambit of this tax of the private firm or partnership. He referred to the old Corporation Profits Tax, which did not include the private firm or partnership, and used certain words with which, I think the Committee in general, will agree. He said that partnership firms all over the country were in competition with companies, and in many cases were carrying on a similar kind of business. He went on to give examples, and said it would be manifestly unfair that the private partnership should be exempt from National Defence Contribution, while the company was to be included. So far, so good. But, in effect, the proposal now before the Committee does not place the private firm or partnership in the same position as the company


but places it in a less favourable position and for the following reason. In the Clause as it stands the company is called upon to pay 5 per cent. of its profits, whereas the private firm or partnership is called to pay only 4 per cent. That might seem at first sight to be a substantial advantage in favour of the private firm or partnership, but if we turn to the proposed new Schedule to which I have referred, we find it there provided that the director-controlled company is to be entitled to make a deduction from its profits in respect of the salaries of directors, and that that deduction is to be 15 per cent. of the profits or £1,500, whichever is the greater, with a limit of £15,000. That deduction in respect of salaries is not available to the private partnership and, consequently, although there is this advantage of i per cent.—4 per cent. instead of 5—in a great number of cases and I would say in all the more important cases, the result is a disadvantage to the private partnership.
I have worked out precisely how the tax would fall upon private firms and director-controlled companies (as they are here described), on varying sums of profit and perhaps the Committee may be interested in the figures. I give the profits of the private firm and the profits of the director-controlled company before making the deduction here allowed for salaries. On a profit of £2,000, of course neither the private firm nor the director-controlled company pay anything. At £3,000 profit, however, the private firm or partnership would be called upon to pay £48 while the director-controlled company would still pay nothing. On £4,000 profit, the private firm would pay £96 and the director-controlled company £30. On £5,000 profit the private firm would pay £144, and the director-controlled company £90. It is not until profits of £10,000 are reached that there is any advantage, and that a very slight advantage, in favour of the private firm as against the director-controlled company. At £10,000 profit the private firm would pay £384 in National Defence Contribution and the director-controlled company would pay £390. I ought to say that on profits above £10,000 this provision gives a slight advantage to the private firm as against the director-controlled company. But the important point is that on profits of £10,000 or less, the private firm or partnership is placed at a disadvantage

by these proposals, compared with the director-controlled limited liability company.
I take the view, which I think is generally held in this Committee, that, on the whole, the private firm or partnership, the business in which the proprietor is venturing his whole fortune, is to be preferred to the business which is carried on as a company. I think the House of Commons prefers to encourage that kind of business, and that hon. Members generally are anxious to encourage the smaller businesses. I think the view will also be generally shared in the Committee that if there is to be any slight advantage in this matter, it ought to be in favour of the private firm or partnership as against the company, and in favour of the small man as against the big man. My proposal would have the effect of putting the private firm on at least as favourable a basis as the company, but no more. I think that is a very modest demand. We might well ask the Chancellor of the Exchequer to put the private firm in a more favourable position than the company, that is to say to allow the charge to remain at 4 per cent. and also to allow the private firm or partnership a deduction in respect of salaries similar to that which is allowed to the company. I do not think that would be an excessive demand, but I have not gone as far as that. I merely ask that the private firm should not be worse off than the director-controlled company. There is a case here which the right hon. Gentleman ought to meet and he ought to be prepared to make this concession.
I will give one further reason why, if any advantage at all is to be given, it should be in favour of the private firm or partnership rather than the company. It relates to the question of Surtax. Let us suppose that two partners are operating a business and that they make £10,000 profit. Let us suppose they are equal partners and that their share is £5,000 each. They are assessed to tax and Surtax on the whole of that amount, and by no means can they escape. But if those same two men were conducting their business as a director-controlled company, and they made £10,000 profit, they could put £2,000 to reserve, then distributing the £8,000, and having £4,000 each, and they would be liable to tax and Surtax only on the £4,000, and not on the £2,000 which they had put to


reserve. So, by operating as a limited company, they would be saving themselves Surtax on £2,000, which the private firm could not save. [Interruption.] Well, they would save on two separate amounts of £1,000. I think that Surtax point lends additional force to my argument in favour of the Amendment. We are told that the tax is to do rough justice, and although we are content that the tax should he rough in certain respects, we want to see justice combined with the roughness. I hope I have supported the Amendment with sufficient vigour to induce the Treasury to make this very important concession in favour of the private film or partnership.

9.17 p.m.

Mr. Spens: I rise to support the Amendment. I am one who has, for many years now, practised very largely in connection with companies and their affairs, and whereas 15, or 20 years ago I should have taken the view that there was nothing better for the country generally than that everything should be done to encourage the private trader to incorporate himself under one or other of the Acts under which it can be done, I now take the view that, from the public point of view, the less you encourage them to do that, the better it will be for all of us. I believe, personally, that a far greater human element is entailed in those businesses which are run by the partners who own them than, speaking generally, in businesses which are run by directors and others on behalf of other people. There is no doubt, on the figures which my hon. Friend the Member for Huddersfield (Mr. Mabane) has put before the Committee, that the very type of firms which are going to be treated most severely under these proposals are the small private-partnership firms, though after a certain stage there is not very much in it. It is the small private-partnership firm which I desire to see maintained in as great a number and as firmly based in this country as is possible, and I foresee that although in a way the figures which the hon. Member has mentioned, as to what they will have to pay beyond their competitors who have been incorporated, are not very great, none the less they may just be the sort of final burden which will drive many of our private traders to incorporate themselves.
I would like to remind the Committee that when it comes to comparing what the private trader has to bear in Income Tax and Surtax as opposed to his competitor who has become the owner of an incorporated company, he does stand to gain a good deal to-day by incorporating himself. The deductions that he can get as regards Income Tax and Surtax are very much greater than if he remains as an ordinary partner in a private firm, and many people appreciate this. Add to that this final attraction of being able to reduce the amount of National Defence Contribution if he incorporates himself, and I believe that you will see that during the next four or five years, if these proposals go through as they are, a certain additional number of small traders will incorporate themselves.
No one wants, or would venture from a back bench, to threaten the Treasury or the Chancellor of the Exchequer, but I would like to point out to the right hon. Gentleman that if there is anything in my anticipation, he will lose far more by loss of Income Tax and Surtax if private traders are driven to incorporate themselves than anything he will lose by putting private traders on a level with their competitors in respect of this tax. I therefore hope that the right hon. Gentleman will see his way to giving the fullest consideration to this Amendment, and I hope that, on behalf of the private traders, hon. Members in this Committee will do their best to support the Amendment.

9.22 p.m.

Mr. Holdsworth: I also wish to support the Amendment. I do not want to add anything on the particular points which have been made by the previous speakers, but there is one point which they did not make, and that is in regard to the way in which the private trader is handicapped as compared with a company so far as allowances for losses in subsequent years are concerned. A private trader, if he makes only 3d. in one year, before he deducts one penny for himself is considered to have made a profit. Suppose a man makes £50 gross profit without allowing any withdrawals for himself and has drawn out of the business £500. He has really lost £450, but for the purpose of Income Tax, he is considered to have made a profit. He cannot make a claim for losses in subsequent years, and he


cannot, so far as I see, make a claim for deduction of losses under this new Clause, whereas the company under this new clause, in given circumstances of that description, would be able to claim an allowance for that loss in subsequent periods, and that is an added point in favour of the Amendment. I have always thought that under the present Income Tax law a grave injustice is suffered by private traders as compared with companies, and I do not think it would be the intention of the Chancellor of the Exchequer or of the Financial Secretary to the Treasury that another injustice should be added to those from which they are already suffering. I trust the Amendment will be accepted.

9.23 p.m.

Mr. Keeling: I should like to add my voice in support of this Amendment, and I think that if the Chancellor of the Exchequer will accept it, he will find, not only that the tax as so amended will be more just and less drastic, but also that in this case justice will be the best policy, for the reason which my hon. and learned Friend the Member for Ashford (Mr. Spens) has just stated. I will only add that I have had letters from two leading firms of accountants, both of which have a very large number of both companies and private firms on their books, and they both say that this Amendment would make the tax a very much juster tax. If my hon. and gallant Friend the Financial Secretary to the Treasury cannot accept the Amendment, I hope that at least he will promise to give it consideration.

9.24 p.m.

Capain Harold Balfour: I would ask the Financial Secretary to the Treasury whether he will give sympathetic consideration to the Amendment, and I am glad to do so particularly as the hon. Member for Huddersfield (Mr. Mabane) was the chief assassin of a Bill which I proposed to introduce some months ago, and which met the fate that I cannot but say I think it deserved, as regards the Bill itself, but as regards its objectives, they are, I believe, common to most Members of this Committee, namely, to preserve the individuality of the small trader and to see that he is not penalised unduly by the growth of large combines and monopolies. Here we have an Amendment on which those who massacred that Bill and the victims of the

assassination are able to combine in a plea to the Government that they should give sympathetic consideration to this Amendment in order that the small trader can be relieved of one more disadvantage which will be placed on him if the Government's proposal goes forward.

9.26 p.m.

Lieut.-Colonel Colville: I understand that the hon. Member for Huddersfield (Mr. Mabane) is not proposing to move the last two Amendments which he has down to the new Schedule. I may, therefore, direct my remarks to his first three Amendments.

Mr. Mabane: I am moving in conjunction with this Amendment, or rather I have included in my discussion, the Amendment to line 116 of the Schedule (Adaptations of Income Tax provisions as to computation of profits.)

Lieut.-Colonel Colville: The hon. Member will correct me if in my reply I take up a point which he did not intend to raise. I understand that what he is moving is this. The effect of his first Amendment to the first Sub-section will be to leave all businesses liable to charge on 5 per cent. of their profits and thus remove the differentiation and then he will go on to give the advantage to the firm by an exemption limit instead of by a differentiation of rate.

Mr. Mabane: That is not the point I have been dealing with at all. I would put private firms on an equality by giving them an equal right with director-controlled companies to make a deduction in respect of the salaries of the partners.

Lieut.-Colonel Colville: The hon. Member has the other Amendments down and I understand that they all hang on the first Amendment, which was to remove the differentiation at present allowed and in its place to give another form of advantage to the company. We have paid close attention to this question of putting the private firms on an equal footing with companies in the application of this tax but we conceive that the method we have employed is in fact a fair one, and we have been subjected to some criticism for the degree of advantage which we have proposed to give in the 4 per cent. rate as compared with the 5 per cent. rate.

Mr. Mabane: It is not an advantage at all. Surely the right hon. Gentleman does


not challenge my figures. I have indicated that the private partnership will pay more, not less. It is not an advantage.

Lieut.-Colonel Colville: In our view the difference between the 4 per cent. and the 5 per cent. does give a fair deal to the firms. I understand that the hon. Member's view is that the allowance in respect of remuneration whether in the form of deduction of profits for individuals or in the form of a restriction of allowance to be made for remuneration should be 20 per cent.

Mr. Mabane: did not refer to that Amendment in the least. That is a quite different point.

Lieut.-Colonel Colville: Lieut.-Colonel Colville rose—

Mr. Barnes: On a point of Order. Can we have explained to us which Amendment we are, in fact, dealing with?

The Deputy-Chairman: The hon. Member moved an Amendment in line 5 to put the private firms on the same basis of taxation as public companies. On the Order Paper are a number of Amendments in the name of the hon. and learned Member for Ashford (Mr. Spens) and the hon. Member for Huddersfield (Mr. Mabane) and I think the Financial Secretary, as we have been, is somewhat puzzled as to which of these Amendments applied to the scheme by which the taxation was increased up to the limit allowed in the Financial Resolution on the private firm and other reliefs were to be granted or whether the Amendments stood by themselves. I must admit that I have been somewhat puzzled.

Mr. Mabane: On that point I took the trouble to give notice three hours ago as to which of these Amendments were to hang together.

Lieut.-Colonel Colville: If that is so the first intimation I had of it is my hon. Friend's speech. I considered these Amendments last night. The Amendment proposed to leave out the provision that there should be a 4 per cent. charge, and in its place to propose certain other advantages to compensate, to put the private firms in the same position as the public companies. We have in our scheme, we believe, framed a method of giving fair justice to the private firms,

and in doing so we have been subjected to a considerable amount of criticism. In our view the method we have adopted is a simple one and a fair one. The hon. Gentleman does not think that it goes far enough. There are many interests who hold the view that it goes too far because of the amount which we anticipate the private firms will escape in the way of the tax. Regarding this, in the phrase of the hon. Member, as rough justice—I think that he felt from his point of view that it was too rough—regarding this as a method of applying rough justice as between firms and companies, we have no doubt in our mind, after a careful and sympathetic consideration of his Amendments—which have been on the Paper for some days—that the differential rate which we propose does give effect to the Government's intentions of treating firms and companies on a fair basis. We could not accept an Amendment or a chain of Amendments which departs from that principle and seeks to apply another method of dealing with firms as distinct from public companies.

9.34 p.m.

Mr. Kingsley Griffith: I am bound to say that I am somewhat amazed by the reply, if it is a reply, which has purported to be made from the Treasury Bench. I have heard a perfectly clear case put forward by the hon. Member for Huddersfield (Mr. Mabane), in which he began by intimating with the greatest clarity which of his Amendments he was moving and I have heard a reply which has no bearing on the matter put forward by the hon. Member. We are told that this is rough justice.
It is all very well to dissemble your love,
But why do you kick me downstairs?
That is the only kind of justice that has been done in this matter. The hon. Member for Huddersfield has put forward arithmetical calculations as to the position of private companies compared with director companies. We are told that on the whole it will work out all right, but for those people mentioned by the hon. Member for Huddersfield it will in detail work out all wrong. I cannot see where the rough justice or any other kind of justice comes in. It would be much more satisfactory if the Financial Secretary had at the beginning of his speech known to what he was replying. As he did not, is it too much to hope that he


will further consider the matter now he has had it made clear to him what the grievance is, because, unless the Treasury have lost faith in the ordinary rules of arithmetic—which I dare say they have from what I have heard earlier in the day—some closer attention ought really to be given to the details put forward by the hon. Member for Huddersfield than has been given.

9.36 p.m.

Mr. H. G. Williams: I was frankly surprised at the reply of my right hon. and gallant Friend the Financial Secretary. Surely the object of the differentiation of 4 per cent. for the private business compared with the 5 per cent. for the corporate body Was an attempt to make things equal. I did not hear the speech of my hon. Friend the Member for Huddersfield (Mr. Mabane), but he gave me some exposition of the matter earlier in the day and he is trying to ensure that both parties shall be treated alike. In reply to a claim like that it is no use for the Treasury representative to say that the Treasury cannot do it. That is not the way in which to address the House of Commons, because the House may say that the Treasury must do it. No one likes my right hon. and gallant Friend more than I do; we all like him; but when he is face to face with arguments he cannot just say, "We cannot do it." We are reasonable people and moderately intelligent, and if the Financial Secretary will give us arguments which will satisfy us more than the arguments of my hon. Friend the Member for Huddersfield, we shall at once ask my hon. Friend to withdraw his Amendment. Until he does that we shall vote for the Amendment.

9.38 p.m.

Mr. Mabane: I pointed out that I am not asking for a differentiation in favour of private partnerships. I am merely asking that they shall be on the same footing, and I want the Financial Secretary to tell me whether he challenges my figures as to what the tax would be with the Clauses and Schedules as they now stand without amendment. I declare that with profits of £3,000 the private partnership will be called upon to pay £48 tax whereas the director controlled company will be called upon to pay nothing. With profits of £5,000 the private partnership will pay £144 and the

director controlled company only £90. I cannot see how that can be interpreted as being in favour of the private partnership. If my figures are inaccurate I shall be glad to admit that I have made a mistake, but if they are not inaccurate, may I ask the Financial Secretary whether he will look into the matter again in the light of what has been said?

9.39 p.m.

Mr. Ede: I am bound to say that the House is being treated with the greatest disrespect by the Treasury Bench in this matter. I followed the hon. Member for Huddersfield (Mr. Mabane) very carefully, and it seemed to me that he was very anxious to help us because we were in the same quandary as you were, Captain Bourne, owing to the number of Amendments with which this one might be connected. He was careful to give us the page and line to which he was referring and anyone who had been detailed by the Government to follow him must have been perfectly clear as to the limits of the Amendments that we were discussing. He also went so far as to give us a careful and detailed estimate of the effect that this tax would have, and there has been no effort to reply to that. All the participants in this Debate have been supporters of the Government except for the hon. Member for West Middlesbrough (Mr. K. Griffith), and the hen. Member for South Bradford (Mr. Holdsworth) who, I gather, never supports anybody but himself. The House ought to have received more guidance than it has received, and I share the view for once of the hon. Member for South Croydon (Mr. H. G. Williams) that the attitude adopted by the Financial Secretary was an entirely wrong one. It seemed to me that the case of the hon. Member for Huddersfield merited a detailed and careful answer on the facts that he put forward. In view of the failure of the Treasury Bench to furnish an adequate reply, we ought to report Progress. If you will accept a Motion to that effect, I will move it.

The Deputy-Chairman: I do not think I can accept the Motion at this moment.

Mr. Ede: I can only hope that if we are not to report Progress we may achieve some progress by receiving a good answer from the Financial Secretary or his chief. Cannot the Financial Secretary say that whoever drew his brief drew the wrong


one, or that he was not able to understand it? Then we might have the advantage, perhaps, of the Chancellor of the Exchequer being brought back. We are reluctant to disturb his dinner, but after all the King's Government must be carried on whether the Chancellor dines or not. I really think that the Government ought to make some effort to meet the perfectly fair case that was made out by the hon. Member for Huddersfield and those who supported him. He said that he thought his Amendment would do rough justice. I am sure he will agree that so far he has received roughness but that his arguments have not received justice. I appeal to the right hon. and gallant Gentleman to make some endeavour to meet the case which was reasonably put forward by the Mover of the Amendment.

9.43 p.m.

Mr. Croom-Johnson: I am bound to confess I think the Mover of the Amendment made a case which calls for a considered answer. I do not share the views of those Members who think that my hon. Friend the Financial Secretary has not done his best. It is obvious that he has not been given the answer, if answer there be, to the arguments which the Committee have had addressed to them. It is also obvious that he has not been given authority to accept the Amendment. In those circumstances, in view of the fact that there has been given neither answer to the Amendment nor authority to accept it, I am a little saddened at the spectacle of the situation in which the Committee find themselves on the very first Amendment to the new Clause. In these circumstances, now that the Chancellor has arrived, I hope that the Committee will have the answer which I imagine there must be to the powerful case which was made by my hon. Friend the Member for Huddersfield.

9.45 p.m.

Mr. James Griffiths: I wish to congratulate the hon. Member for Huddersfield (Mr. Mabane) on the admirable manner in which he moved his Amendment. I cannot share the amazement which has been expressed by hon. Members opposite. They seem to have discovered for the first time that this Government is not a Government out to protect the small trader. This is the Government of big business. We have seen

the combination of the hon. Member for Huddersfield and the hon. Member for South Croydon (Mr. H. G. Williams), a devoted and loyal Conservative, appealing for the small trader but meeting with very little response from the Treasury Bench. The other day, when other Members were speaking on behalf of big business, for the City and for the big combines, we saw a very different attitude on the Treasury Bench. I trust that small traders will realise that there is no hope for them from this Government, which runs away from the combines and throws all the burdens it can on the small trader equally with the worker. I think the reply which the Financial Secretary gave us was worthy neither of himself not of this Committee. Small traders must realise that it is no use their seeking protection from this Government, which is the Government of big business, and that their only hope is to join up with the workers.

9.47 p.m.

Mr. Louis Smith: Those who have studied this Amendment cannot, surely, agree with the hon. Member for Llanelly (Mr. J. Griffiths) in his statement that this Government will not look after the small trader, because in this instance the small business is not touched at all. We are discussing medium-sized businesses. What I think the Mover of the Amendment made perfectly clear to the Committee is that the proposal in the Bill does not work fairly towards the privately-owned business as compared with the business which is director-controlled. I thought that when the Chancellor of the Exchequer withdrew the old Clauses of the Finance Bill and replaced them with these new ones it was done with a desire not only to make very clear what the position of all those in industry would be, but also to make the new tax perfectly equitable as between one business and another. I think the Mover of the Amendment has made out an extremely good case and that the Committee ought to see to it that a private trader is put on the same basis as a director-controlled firm. Now that the Chancellor of the Exchequer himself is present, I trust that we shall hear from him that he will take into consideration the arguments so cogently and clearly put forward by the Mover and the Seconder of the Amendment and make sure that the private


trader is put on the same basis as the director-controlled company.

9.49 p.m.

Mr. Levy: I rise to support the Amendment. One thing which is characteristic of most Britishers is the love of fair play, and, as someone says sotto voce, the love of justice. There are a large number of small traders in my constituency. They do not object to pay taxes, but they object to being treated unjustly. In this House it is usual to meet argument with argument and if an argument is put forward in favour of this particular Amendment it is only reasonable for the Front Bench to put forward another argument to convince lion. Members why the Amendment should not be accepted. This is an important case and if the hon. Member for Huddersfield (Mr. Mabane) takes his Amendment to a Division I shall be compelled to go into the Lobby to support him. This is a case to which consideration should be given by the Front Bench. It may be that those on the Front Bench do not feel disposed to accept the Amendment now but would prefer to deal with the matter on Report stage, giving an undertaking that it will receive consideration; but if this Amendment is not accepted I fail to see what argument can be put forward which will show that an injustice will not be inflicted upon the small trader. Therefore, I ask the Financial Secretary or the Chancellor of the Exchequer to give us a complete answer to the argument that is put forward, to give us, if he does not accept the Amendment, something which will convince us that it ought not to be accepted.

9.52 p.m.

Sir J. Simon: I am sorry that I was not myself present when the Amendment was moved, but it is inevitable that my right hon. and gallant Friend and myself should to a certain extent relieve one another. I have, however, had the advantage of a certain amount of private conversation concerning it. I must again ask the Committee to appreciate that it is not possible in a scheme of this sort to secure a scientifically exact application of the charge so that it will be logically and with the greatest mathematical nicety adjusted to any and every assumed case. That is not the nature of this proposal. I have known from the beginning—one needs to

know very little mathematics to appreciate it—that if you provide that a tax shall be at the rate of 5 per cent. in the case of a company and 4 per cent. in the case of a firm, it is easy to imagine instances in which it can be shown that the difference between 5 per cent. in the one case and 4 per cent. in the other does not work out to produce precise mathematical equality. It must be so.
Take, for example, the simplest of all cases, that of a partnership firm which is making, let us say, £10,000 profit assessed to Income Tax and, of course, taking nothing from that total except the partnership shares, and the case of a company which may be making anything between £10,000 and £15,000, but, in the case of one company, has a cheap list of directors and in the case of another company an expensive list. It is perfectly obvious that you cannot get the figures to fit. But that is really the essential result of a general scheme of this sort. There is no mathematical solution for that. The first thing to consider is: Is it right on the whole to draw a difference between companies and firms? The second question is: Is this difference the kind of difference to draw? I think it is, because it is the result of a great deal of thought which many people have given to the point. Having regard to the different things which companies do before they pay their Income Tax which firms cannot do it is evident that you must have some differential treatment, and I have thought that on the whole the arrangement was a fair one. There will be cases where somebody will say, "I am glad that I am not a company but a firm," and other cases where somebody else will say, "I am glad that I am not a firm but a company," but I do not believe it is possible to devise a general principle which will avoid that possibility. My hon. Friend had more particularly in his mind the director-controlled company.

Mr. Mabane: My point was that, as between the director-controlled company and the partnership it has been suggested by the Financial Secretary that there is an advantage in favour of the partnership. I have produced certain figures to show that that is not really quite accurate, and I am asking that partnerships should be put upon exactly the same level as director-controlled companies. By the Clause, the director-controlled company


is entitled to make a deduction from its profits in respect of the salaries of directors of 15 per cent. of the profits, or £1,500, whichever is the greater, with an upward limit of £15,000, and pay 5 per cent. I am asking that the partnership should be able to make that deduction in respect of salaries and pay 5 per cent. It would suit me admirably if a partnership could make the choice whether to pay 4 per cent. and make no deduction for salaries, or deduct for salaries and pay 5 per cent. I do not desire to press the point unduly, but if the Clause could be reconsidered I think the wishes of the Committee would be met.

Sir J. Simon: My hon. Friend has stated his point so clearly that I do apprehend it. I may be wrong, as I have not been here the whole time, but has the point been considered that, in the case of a director-controlled company, the directors themselves will ordinarily take an important position in controlling the day-to-day work of the company? If they have a manager as well, he may be a comparatively subordinate person. The directors will be the principal persons. They will go to the office every day and decide how the business will be run. It is for that reason that the Clause has been drawn to include, among those whose salaries must be deducted, a manager only where he holds as much as 20 per cent. of the shares.
Now let us take the case of a firm which is conducting the same kind of business. It is by no means always the case that the manager of a firm holds the sort of position held by the manager of a director-controlled firm. You may have sleeping partners in a firm, and it may be that the manager is the most important person and the most highly remunerated person. The position of general manager in a firm does not always correspond with that of the general manager of a director-controlled company. That was one consideration which I had in mind in framing this scheme, and I am not sure whether my hon. Friend has considered that point. It may be that the scheme as we have framed it is not in the best form, but I warn the Committee that there is no method which you could introduce into it which would be scientifically and mathematically perfect, if you select your instance.

You can always select your instance to show that, as the Clause stands, it would be unfair on this side or on the other.
Having said that, I will, if the Committee will allow me, first of all take advantage of what hon. Members have said and very carefully study what was said when I was not here. I dare say that I shall have the opportunity of conferring with hon. Members who feel that they are specially qualified to point out the difficulty. It may be that some adjustment could be made in the case of director-controlled companies, either at this stage or by some Amendment of the main scheme; that is to say, that companies as a whole will be dealt with as the Clause provides. The director-controlled company is very analogous to a firm; it may be that that is almost an accident. Some are rather nearer to a firm in their nature than to a company. I am, therefore, perfectly ready to believe that some of the wording may not be precisely right, and if my hon. Friend will accept that assurance I most certainly will see what can be done.

Mr. Mabane: I am grateful to my right hon. Friend. I do not want to be dogmatic about this. I put a case which seemed to me to be a good case and which apparently seemed to the Committee to be a good case. Nevertheless I recognise that it may not be accurate in every detail. In view of the full assurance given by my right hon. Friend I beg to ask leave to withdraw my Amendment.

10.1 p.m.

Mr. H. G. Williams: On a point of Order. I understand that an Amendment proposed with the effect of increasing the burden would be out of order upon the Report stage, and I am asking your guidance, Captain Bourne, on the matter. Any proposal which is accepted and which alters this scheme, would inevitably make the burden higher on some people, as the Chancellor of the Exchequer has pointed out. Before we lose control of this matter now, I want to be satisfied, on the ground of Parliamentary procedure, that we can in fact do it on the Report stage. If we cannot do it on the Report stage, I should be averse to the Amendment being withdrawn, because we ought to decide the matter now. That is my interpretation of the Rules.

The Deputy-Chairman: I understand that the hon. Member is putting a point of Order to me. Quite obviously, it is out of order on the Report stage of the Bill to impose any burden on anybody which is not sanctioned by the Committee, whether it is within the terms of the authorisation of the Resolution or not. At the same time, it is always possible to recommit a Bill in respect of an individual proposal. I would point out that it would not necessarily pass out of the control of the House.

Mr. Mebane: Would it not be possible to make an Amendment, in parts that, as it were, hang together, that would not altogether increase the charge, although perhaps one part would increase the charge?

The Deputy-Chairman: Obviously that is a matter for Mr. Speaker.

Mr. Mebane: I beg to ask leave to withdraw the Amendment.

10.4. p.m.

Mr. Garro Jones: The Committee appears to be in some difficulty on this

point. On the one hand the hon. Member for Huddersfield (Mr. Mabane) has made out a case which has appealed, so far as aural evidence showed, to the judgment of the Committee as a whole. There are hon. Members on this side and on the other side who object to the withdrawing of the Amendment, if thereby we are putting the matter outside our control. I would suggest that the Chancellor of the Exchequer should accept the Amendment and reserve the right to withdraw it on the Report stage. By the reverse procedure we should run into conflict with the Rules of the House, but by the procedure I suggest the right hon. Gentleman would satisfy the Committee and would avoid our having to force this matter to a Division.

Question put, "That the words proposed to be left out stand part of the proposed Clause."

The Committee divided: Ayes, 192; Noes, 122.

Division No. 247.]
AYES
[10.4 p.m.


Acland-Troyte, Lt.-Col. G. J.
Crowder, J. F. E.
Herbert, Capt. Sir S. (Abbey)


Agnew, Lieut.-Comdr. P. G.
Cruddas, Col. B.
Higgs, W. F.


Allen, Col. J. Sandeman (B'knhead)
Denman, Hon. R. D.
Hills, Major Rt. Hon. J. W. (Ripon)


Anstruther-Gray, W. J.
Dorman-Smith, Major Sir R. H.
Holmes, J. S.


Aske, Sir R. W.
Duckworth, W. R. (Moss Side)
Hope, Captain Hon. A. O. J.


Assheton, R.
Dugdale, Captain T. L.
Hopkinson, A.


Baldwin-Webb, Col. J.
Duncan, J. A. L.
Hudson, Capt. A. U. M. (Hack., N.)


Balfour, Capt. H. H. (Isle of Thanet)
Eckersley, P. T.
Hume, Sir G. H.


Barclay-Harvey, Sir C. M.
Edge, Sir W.
Hunter, T.


Beamish, Rear-Admiral T. P. H.
Edmondson, Major Sir J.
Jones, L. (Swansea W.)


Beaumont, Hon. R. E. B. (Portsm'h)
Elliot, Rt. Hon. W. E.
Keeling, E. H.


Boothby, R. J. G.
Ellis, Sir G.
Kerr, J. Graham (Scottish Univs.)


Boyce, H. Leslie
Elliston, Capt. G. S.
Keyes, Admiral of the Fleet Sir R.


Briscoe, Capt. R. G.
Elmley, Viscount
Kimball, L.


Brooklebank, Sir Edmund
Emrys-Evans, P. V.
Lamb, Sir J. Q.


Brown, Col. D. C. (Hexham)
Errington, E.
Law, Sir A. J. (High Peak)


Brown, Rt. Hon. E. (Leith)
Erskine-Hill, A. G.
Law, R. K. (Hull, S.W.)


Brown, Brig.-Gen., H. C. (Newbury)
Evans, Capt. A. (Cardiff, S.)
Lees-Jones, J.


Bull, B. B.
Fildes, Sir H.
Leighton, Major B. E. P.


Butcher, H. W.
Fleming, E. L.
Levy, T.


Cartland, J. R. H.
Furness, S. N.
Liddall, W. S.


Carver, Major W. H.
Fyfe, D. P. M.
Little, Sir E. Graham-


Cary, R. A.
Ganzoni, Sir J.
Llewellin, Lieut.-Col. J. J.


Castlereagh, Viscount
Gledhill, G.
Lloyd, G. W.


Cayzer, Sir H. R. (Portsmouth, S.)
Gluckstein, L. H.
Loftus, P. C.


Cazalet, Thelma (Islington, E.)
Glyn, Major Sir R. G. C.
Mabane, W. (Huddersfield)


Cazalet, Capt. V. A. (Chippenham)
Goldie, N. B.
Mac Andrew, Colonel Sir C. G.


Christie, J. A.
Gower, Sir R. V.
McCorquodale, M. S.


Clarke, F. E. (Dartford)
Grant-Ferris, R.
Macdonald, Capt. P. (Isle of Wight)


Clarke, Lt.-Col. R. S. (E. Grinstead)
Granville, E. L.
McKie, J. H.


Clarry, Sir Reginald
Gretton, Col. Rt. Hon. J.
Maitland, A.


Cobb, Captain E. C. (Preston)
Gridley, Sir A. B.
Makins, Brig.-Gen. E.


Colfox, Major W. P.
Grimston, R. V.
Manningham-Buller, Sir M.


Colman, N. C. D.
Gritten, W. G. Howard
Margesson, Capt. Rt. Hon. H. D. R.


Colville, Lt.-Col. Rt. Hon. D. J.
Guest, Lieut.-Colonel H. (Drake)
Markham, S. F.


Cooper, Rt. Hn. T. M. (E'nburgh, W.)
Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)
Mayhew, Lt.-Col. J.


Conant, Captain R. J. E.
Guy, J. C. M.
Mellor, Sir J. S. P. (Tamworth)


Cox, H. B. T.
Hannah, I. C.
Mills, Major J. D. (New Forest)


Critchley, A.
Haslam, Sir J. (Bolton)
Moreing, A. C.


Crooke, J. S.
Heilgers, Captain F. F. A.
Morgan, R. H.


Croom-Johnson, R. P.
Heneage, Lieut.-Colonel A. P.
Morrison, G. A. (Scottish Univ's.)


Cross, R. H.
Hepburn, P. G. T. Buchan.
Morrison, Rt. Hon. W. S. (Cirencester)


Crossley, A. C.
Hepworth, J.
Muirhead, Lt.-Col. A. J.




Munro, P.
Robinson, J. R. (Blackpool)
Tasker, Sir R. I.


Neven-Spence, Major B. H. H.
Ropner, Colonel L.
Tate, Mavis C.


Nicolson, Hon. H. G.
Ron Taylor, W. (Woodbridge)
Thomson, Sir J. D. W.


O'Connor, Sir Terence J.
Rowlands, G.
Touche, G. C.


Palmer, G. E. H.
Russell, Sir Alexander
Tryon, Major Rt. Hon. G. C.


Patrick, C. M.
Salmon, Sir I.
Wakefield, W. W.


Peaks, O.
Salt, E. W.
Walker-Smith, Sir J.


Peat, C. U.
Samuel, M. R. A.
Wallace, Capt. Rt. Hon. Euan


Pickthorn, K. W. M.
Savery, Sir Servington
Ward, Irene M. B. (Wallsend)


Ponsonby, Col. C. E.
Shaw, Major P. S. (Wavertree)
Waterhouse, Captain C.


Procter, Major H. A.
Shaw, Captain W. T. (Forfar)
Wells, S. R.


Radford, E. A.
Shepperson, Sir E. W.
Whiteley, Major J. P. (Buckingham)


Ramsay, Captain A H. M.
Simon, Rt. Hon. Sir J. A.
Williams, H. G. (Croydon, S.)


Ramsbotham, H.
Smiles, Lieut.-Colonel Sir W. D.
Windsor-Clive, Lieut.-Colonel G.


Ramsden, Sir E.
Smith, L. W. (Hallam)
Wise, A. R.


Rankin, Sir R.
Smith, Sir R. W. (Aberdeen)
Womersley, Sir W. J.


Rayner, Major R. H.
Somerville, A. A. (Windsor)
Wragg, H.


Reed, A. C- (Exeter)
Spens, W. P.
Wright, Squadron-Leader J. A. C.


Reid, J. S. C. (Hillhead)
Strauss, H. G. (Norwich)
Young, A. S. L. (Partick)


Reid, W. Allan (Derby)
Strickland, Captain W. F.



Remer, J. R.
Stuart, Hon. J. (Moray and Nairn)
TELLERS FOR THE AYES.—


Rickards, G. W. (Skipton)
Sueter, Rear-Admiral Sir M. F.
Lieut-Colonel Sir A. Lambert Ward




and Major Sir George Davies.




NOES


Acland, R. T. D. (Barnstaple)
Hall, G. H. (Aberdare)
Paling, W.


Adams, D. (Consett)
Hall, J. H. (Whitechapel)
Parker, J.


Adams, D. M. (Poplar, S.)
Harvey, T. E. (Eng. Univ's.)
Parkinson, J. A.


Ammon, C. G.
Henderson, A. (Kingswinford)
Price, M. P.


Anderson, F. (Whitehaven)
Henderson, J. (Ardwick)
Quibell, D. J. K.


Banfield, J. W.
Henderson, T. (Tradeston)
Richards, R. (Wrexham)


Barr, J.
Hills, A. (Pontefract)
Ridley, G.


Batey, J.
Holdsworth, H.
Ritson, J.


Broad, F. A.
Hollins, A.
Robinson, W. A. (St. Helens)


Bromfield, W.
Hopkin, D.
Rowson, G.


Brown, C. (Mansfield)
Jagger, J.
Salter, Dr. A. (Bermondsey)


Brown, Rt. Hon. J. (S. Ayrshire)
Jenkins, A. (Pontypool)
Seely, Sir H. M.


Buchanan, G.
Jenkins, Sir W. (Neath)
Sexton, T. M.


Burke, W. A.
John, W.
Silkin, L.


Cape, T.
Jones, A. C. (Shipley)
Silverman, S. S.


Charleton, H. C.
Jones, Sir H. Haydn (Merioneth)
Simpson, F. B.


Chater, D.
Kelly, W. T.
Smith, Ben (Rotherhithe)


Cluse, W. S.
Kennedy, Rt. Hon. T.
Smith, E. (Stoke)


Cocks, F. S.
Kirby, B. V.
Smith, T. (Normanton)


Cove, W. G.
Kirkwood, D.
Sorensen, R. W.


Cripps, Hon. Sir Stafford
Lansbury, Rt. Hon. G.
Stewart, W. J. (H'ght'n-le-Sp'ng)


Daggar, G.
Leach, W.
Strauss, G. R. (Lambeth, N.)


Dalton, H.
Lee, F.
Taylor, R. J. (Merpeth)


Davies, S. O. (Merthyr)
Leonard, W.
Thurtle, E.


Day, H.
Leslie, J. R.
Tinker, J. J.


Dobbie, W.
Logan, D. G.
Viant, S. P.


Dunn, E. (Rother Valley)
Lunn, W.
Walkden, A. G.


Ede, J. C.
Macdonald, G. (Ince)
Walker, J.


Edwards, A. (Middlesbrough E.)
McEntee, V. La T.
Watkins, F. C.


Edwards, Sir C. (Bedwellty)
McGhee, H. G.
Watson, W. McL.


Evans, E. (Univ. of Wales)
MacLaren, A.
Welsh, J. C.


Fletcher, Lt.-Comdr. R. T. H.
Maclean, N.
Westwood, J.


Gallacher, W.
Mainwaring, W. H.
Whiteley, W. (Blaydon)


Gardner, B. W.
Marshall, F.
Wilkinson, Ellen


Garro Jones, G. M.
Mathers, G.
Williams, E. J. (Ogmore)


George, Megan Lloyd (Anglesey)
Messer, F.
Windsor, W. (Hull, C.)


Graham, D. M. (Hamilton)
Milner, Major J.
Woods, G. S. (Finsbury)


Green, W. H. (Deptford)
Montague, F.
Young, Sir R. (Newton)


Griffith, F. Kingsley (M'ddl'sbre, W.)
Morrison, R. C. (Tottenham, N.)



Griffiths, G. A. (Hemsworth)
Naylor, T. E.
TELLERS FOR THE NOES.—


Griffiths, J. (Llanelly)
Oliver, G. H.
Mr. Muff and Mr. Davidson.


Groves, T. E.
Owen, Major G.

10.13 p.m.

Captain Peter Macdonald: I beg to move, as an Amendment to the proposed Clause, in line 6, at the end, to insert:
(2) If the total revenue raised from the tax reaches the sum of one hundred and twenty-five million pounds sterling before the expiry of the period of five years beginning on the first clay of April, nineteen hundred and thirty-seven, the tax shall cease to operate at the end of the financial year in which that sum has been received by the Exchequer.

This Amendment, if accepted, would give effect to an assurance given by the Chancellor in introducing the new form of National Defence Contribution, when he stated that the reason for withdrawing the tax in its original form was that it was found to be unreasonable in its incidence, and that, in order to make it reasonable, the intention was to introduce the tax in a new form. He said that, so long as he obtained the sum of


£25,000,000 per annum over a period of five years, all the requirements of the new tax would me fulfilled. But it was the intention of the Government that the taxpayer should not escape, and the Chancellor used a rather amusing simile, which was to the effect that, while the taxpayer could have an alternative, he must accept the fate of either being boiled or roasted.
The taxpayer should not be consigned to that unhappy fate for an unlimited period or indiscriminately. If the Chancellor of the Exchequer accepts this Amendment he Swill merely be reassuring the taxpayer that his original statement was sincere and that the tax will be limited to £25,000,000 per annum, and that when he has obtained the £125,000,000 which he aims at he is prepared to withdraw the tax. The right hon. Gentleman may take the view that the assurance is not necessary, but we have had ample evidence in the Debates that have taken place that it is very necessary. The country is still very unhappy about the tax. They do not know how long it is going to last and for how much they are going to be mulct. I hope, therefore, that the Chancellor will accept this very reasonable Amendment, which is only putting into effect the assurance that he gave on the introduction of the tax.

10.18 p.m.

Mr. Boothby: The Clause and the tax are not very popular in any part of the Committee. We regard it as a great improvement on the number one proposal, but no one would suggest that it is a popular tax. The right hon. Gentleman specifically stated that his object was to raise a sum of £125,000,000 out of the profits of industry for the purpose of our exceptional expenditure on rearmament for the next few years. He will not be permanently bound if he accepts the Amendment, but that it would be a gesture to industry at a rather difficult time if he were to say that his present intention was not to raise more than the £125,000,000 that he originally stipulated for. To be frank, some of us are not absolutely convinced that his estimate will not be somewhat exceeded and, while I am the last to say that the profits of industry should not bear their fair proportion of the expense of rearmament, at the same time the right hon. Gentleman

put forward a specific objective. He said he wanted to raise £125,000,000 to meet this particular expense. We are asking him to say that unless some exceptional circumstance arises which causes him, as it well may, further to increase our expenditure on rearmament, in which case it is obvious that he will require further revenue, he should make this gesture and say he will limit the tax to the amount which at present he has in mind.

10.20 p.m.

Sir J. Simon: I am sorry that I cannot accept this proposal. It is, so far as I know, entirely a novelty in the way of taxation. It is quite true that the Committee generally accepts from the Chancellor of the Exchequer his best estimate of what a tax will produce, and very great skill and care are required to make these calculations. I am aware that they may perhaps not be right either in one direction or in the other. I do not myself recollect any occasion from beginning to end in which I have ever spoken of £125,000,000. I noticed that neither my hon. and gallant Friend who moved nor my hon. Friend who seconded the Amendment purported to produce such a quotation. What I do remember is that my predecessor, the present Prime Minister, when he was discussing his proposal that there should be a special contribution called for from trade and industry, said that he wanted, in the first year, some £25,000,000, but he went on to say that the yield thereafter would depend upon the course of profits, and further that we must not assume—we cannot assume with cast-iron truth—that the precise amount that will be wanted in the next five years will be $1,500,000,000. It may be more, it may conceivably be less, and it is possible that it may be spread over a longer or a shorter time, but what I have done by the terms of the tax before the Committee is to provide that what we are now doing shall continue in operation for five years. That in itself is a very unusual provision, and I think that it is a valuable provision. I am afraid that I cannot undertake to be the author of what, as far as I know, is an entirely unprecedented gesture in the matter of collecting taxation.

10.22 p.m.

Mr. MacLaren: From what we have heard since this discussion began on this


particular Resolution it would appear to anyone with a sense of sportsmanship that he should defend the Government. These persistent attacks behind the Government benches have forced me to intervene. I noticed that the Chancellor of the Exchequer, with that exact precision which is characteristic of him, put his finger on the point. It has been stated by the hon. Member for East Aberdeen (Mr. Boothby) that this is only a gesture. I wonder what hon. Members would have said if that gesture had been proposed from the Labour benches? It implies, as the Chancellor of the Exchequer rightly says, an innovation that groups of taxpayers within the State shall say of their own volition the amount that shall be paid to the Treasury and the number of years that they should be subject to the impost. There is nothing that would please the Labour party more than that the working classes should have mass meetings to decide how much taxation they should pay and the number of years they should be subject to the impost. It is a good thing in constitutional law that one Parliament shall not bind another. Here we have a suggestion that, whatever happens now or in the near future, apart altogether from any consideration of whatever Government happens to be in power, they shall be bound by the gesture. If the Amendments were carried the gesture would turn into a cast-iron chain on the succeeding Government.

Mr. Boothby: The hon. Member knows as well as I do that no Parliament can possibly bind its successor, and no Session can bind a succeeding Session. The same argument applies to the five-year limitation.

Mr. MacLaren: We on this side have implicit faith in the Chancellor of the Exchequer's statement regarding this Amendment. We are not showing that lack of faith in leadership which is being shown by hon. Members on the other side. We believe that the Chancellor of the Exchequer meant what he said, although we have our suspicions. We have observed in the past history of taxes in this country or in any other country, that most of these new taxes on industry are transitory. That is the farce. As soon as the tax begins, a bureaucratic machine grows up around its maintenance, and you can take it from me that it will not be

abolished. Any new impost creates an army of bureaucrats to get it going and keep it going, and the most difficult thing in the world is to abolish a bureaucratic machine. You can more easily destroy a Government than you can destroy a Government Department. Therefore, I hope the followers of the Government will accept the advice tendered by the Chancellor of the Exchequer and refuse to accept this Amendment, and we on this side will help the Government in the very serious situation in which they find themselves.

10.27 p.m.

Sir J. Mellor: I very much regret that the Chancellor of the Exchequer cannot see his way to accept the Amendment. I agree that no precise undertaking was given that the amount should be limited to an aggregate of £25,000,000, but it has been clearly said that it is to be a temporary tax for a period of five years and, most emphatically, that a yield of £25,000,000 a year on the average should be aimed at. May I quote the Chancellor of the Exchequer when he moved the new National Defence Contribution?
If in a full year I am only going to get £25,000,000, and that will be subject to a deduction of one-fourth on assessment to Income Tax, I am not in a position to be generous in every quarter."—[OFFICIAL REPORT, 21st June, 1937; col. 868, Vol. 325.]
I hope that he will be able to review the matter and, a little further on, be generous in respect of some of the other Amendments. That statement of the Chancellor of the Exchequer was very definitely confirmed by the Financial Secretary to the Treasury in the same Debate. He said:
There can never have been any doubt in the minds of Members of the Committee as to the amount which we aimed at—£25,000,000 gross. Twenty-five million pounds is the actual amount which will be obtained from this tax, but that is off-set, of course, by the allowance for Income Tax."—[OFFICIAL REPORT, 21st June, 1937; col. 970, Vol. 325.]
In view of that statement it would be very unfortunate and would give a great deal of disappointment to those concerned in industry if they are to be expected to pay something above a total sum of £125,000,000. The Chancellor of the Exchequer said he felt rather like collecting a voluntary contribution. Industry has taken these proposals with a very good grace. I do not think the proposals have been revised to such an extent that


industry is expected to find more than £25,000,000 a year for more than five years. If the Chancellor of the Exchequer requires more money, as he may well do in the course of the five years, such further sums should be obtained from other sources and not from industry under these N.D.C. proposals.

10.30 p.m.

Mr. Garro Jones: Occasionally we have an Amendment proposed from the other side with a grain of common sense in it, and we have often been greatly disappointed when they have not been pressed to a Division. At the same time we have been consoled by the thought that some little good may have been done by a discussion of these Amendments. I am surprised that the hon. Member for East Aberdeen (Mr. Boothby) has put his name to an Amendment which is not going to be pressed to a Division, and speaking for myself I cannot see what good purpose can be served by discussing it. After all, the only real effect of an Amendment like this would be to debunk the venerable device by which all taxes are introduced first as a temporary tax, and I regret that they have taken away the anodine when they explain that the introduction of this new impost should be exposed by an Amendment of this kind. It is entirely unsound in principle. If the test of the duration of a tax is to be the amount of its yield, why did not hon. Members include in their Amendment that if the tax does not yield £125,000,000 in the next five years it should last for a great deal longer than five years?
Of course the real danger and objection to the Amendment is that if it was passed it would be interpreted as a pledge, and if at the expiration of five years some new circumstance was to arise such as a declaration of war, which would require the raising of a much larger amount and demand the maintenance of this impost, we should be met with a howl of protest from the interests affected that we were breaking a pledge given by the Parliament of 1937. I hope that when hon. Members bring forward Amendments which they do not intend to press to a Division they will at least do us the honour of avoiding proposals such as this which are not characterised by common sense.

Amendment negatived.

10.34 p.m.

Mr. Alexander: I beg to move, as an Amendment to the proposed Clause, in line 10, at the end, to insert:
other than that of a society registered under the Industrial and Provident Societies Acts, 1893 to 1928.
A good deal has been said as to whether a tax imposed by one Parliament should be held to be binding on another. In the case of the Amendment I am moving we are dealing with a principle which we are not allowed to discuss in the House in the ordinary way because of a decision of the Finance Act of 1933. Whenever we have endeavoured to discuss whether or not we can secure a redress of the grievances of members of mutual industrial and provident societies under the Act of 1933, we have always been ruled out by Mr. Speaker in the House or by the Chairman of Ways and Means in Committee on the ground that if we obtain a redress of our grievances some other section of the community will have to bear an increased charge. Therefore, until we can altogether change the form of Government, we are absolutely precluded from Parliament to Parliament from obtaining a redress of grievances in this respect. It was perhaps just as well that the question of binding one Parliament as against another was raised just now. Here is a case in point, where, with regard to the principle of mutuality in relation to taxation, we are not allowed in the ordinary way to get a redress of grievances.
On this occasion, however, the Chancellor of the Exchequer introduces a new general tax—the National Defence Contribution—and includes a special provision within the terms of the Clause which makes it clear that industrial and provident societies are to be subject to it. The whole basis of the National Defence Contribution is that it is charged, not, as the Income Tax, upon all the people in receipt of incomes in the country, but as a special tax upon the profits of industry. The Chancellor of the Exchequer must know that our objection to including industrial and provident societies within the scope of this tax is not because any of our members or shareholders have any special antipathy to paying their due and proper share of the burden of armaments—[Interruption.] I do not see why that should cause any merriment on the part of hon. Members opposite. There is


no better body of people from the point of view of paying their fair share of taxation and saving expenditure to the State than the co-operators. I would be prepared to demonstrate that to hon. Members at any time and to give facts and figures to prove my case.
Our case against this is that the Government are asking nearly 8,000,000 cooperators, the majority of whom are below the Income Tax level, to pay a special contribution, which is described by the Chancellor of the Exchequer as a tax upon profits, although they do not make profits. On that ground we can debate —and debate with effect, I think—whether or not mutuality is a process under which profits are made. Earlier in the evening T was interested to hear anxious inquiries from the right hon. and gallant Gentleman the Member for Ripon (Major Hills as to exactly how other Subsections of this Clause would affect the reserve funds put aside to meet the charges upon the life fund of insurance companies, how, for example, the tax would affect the reserves or surpluses, or even the general transactions, of those life insurance offices.
When the right hon. and gallant Gentleman was speaking, I wondered how he voted in 1933. I wonder how the hon. Members with whom he now sits in the House voted in 1933, when the Chancellor at that time, in order to make a penal attack upon one section of the community, deliberately introduced a Bill in Parliament to upset the impartial and considered judgment of the final Court of Appeal in this country, a decision which was taken, in fact, upon the very class of case to which he has referred and which has come down in the records as Styles v. Rex. taken on the New York Mutual Life Office. The disability under which those who belong to mutual trading societies are suffering to-day is entirely due to the fact that the present Prime Minister, whom the right hon. and gallant Member supports, deliberately upset the impartial judgment of the final Court of Appeal in this country as to what did or did not constitute mutual trading and whether, in fact, mutal trading did constitute a profit.
We are faced to-night with exactly the kind of position which all those who have endeavoured to lead the co-operative movement on this question forsaw

would arise, once the 1933 Act was carried. We said, when the Chancellor of the Exchequer of that time brought in that Measure that it would be used as the thin end of the wedge for making further inroads upon the mutual savings of co-operators. Here is an example. Here is a National Defence Contribution for which industrial and provident societies are to be mulcted, as has been shown to-night by the Chancellor's statement, and from which, as the hon. Member for Hallam (Mr. L. Smith) said, the small trader who trades for his private and personal profit is to be exempted, because all profits up to £2,000 from trading are to be exempt and those traders who are making a profit a little better than £2,000, are to have special concessions.
Although they trade for private and personal profit they are to be specially relieved from this contribution, but the millions of working-class people who band themselves together in a mutual organisation, in order to save what they can in the spending of their already fully-taxed incomes, are to be specially charged simply because they associate together for purposes of thrift. They are to be charged upon what has accumulated in their central organisation although the majority of those to whom it belongs are not taxable persons. They are then to be told, as was indicated just now, by Conservatives and by certain traders, that because they take up their present position they are unwilling to make their proper contribution to the cost of the country's defence.
As regards raising money by direct taxation for the armaments programme, there is no section of the co-operative movement which is not willing to do its part in relation to the ability of its members to pay. So far from not having borne our proper share as co-operators, we have over and over again been overtaxed in relation to the individual incomes of our members. By our mutual thrift and association, we have saved the State from public charges which would otherwise have been incurred in the care of people who had not taken advantage of those opportunities for thrift. Now, because we were unfairly treated in 1933 because the decision in the case of Styles v. Rex was destroyed for no real reason except the envy,


hatred and malice of other people engaged in trade for profit, we are to be mulcted in a further charge, and no means of redress is provided for any of the shareholders in the movement which is now described as the industrial and provident society movement.
It is still open to the Chancellor of the Exchequer to retrieve his reputation in this matter. My hon. Friend the Member for East Ham, South (Mr. Barnes) on the Money Resolution gave a little of the history of the right hon. Gentleman in this matter. While we are not going to waste time handing political bouquets to the right hon. Gentleman, we know what his authoritative position as a lawyer was on taxation questions. We could not have gone to a higher authority in the year 1920 than to the present Chancellor of the Exchequer—I think at that time he was in consultation with Mr. Wylie—as to the proper treatment of industrial and provident societies in relation to the Corporation Profits Tax. I do not mean to repeat the salient extracts from the right hon. Gentleman's opinion of 1920 which my hon. Friend quoted the other night, but if the Chancellor of the Exchequer says he cannot meet us simply because of the Act of 1933 and that the whole situation has changed because of that Act, let me say to him that as an authority on Income Tax principle, I think he will have to admit that his opinion was given, not as to whether an Act of Parliament existed or not, but on what was the principle, and I remember his saying in that opinion that it would not be rational for co-operative societies at that time to be mulcted in a Corporation Profits Tax.
We say that it is just as irrational now as it was in 1920 for those who in the main are not receiving incomes up to the taxable limit to be specially taxed on surpluses which arise from the mutual association in which they associate to save themselves in spending their fixed income, and if the Chancellor of the Exchequer can show us how the position is changed from 1920 from being irrational to something which is now rational, I shall be very glad to hear his argument, but he will have to be much more clever, I think, politically, than he has shown himself in the past, and he will have to adopt something more of the facility which he had at the Bar to persuade us on a point like that. We

have, right through the movement for which I speak—some millions of them—a profound objection to the destruction of that mutual principle in 1933. We are not permitted under the Rules of the House to obtain redress of that grievance on a Finance Bill by moving to amend that law, but we can resist with all the power that we can command here a further extension of the grievance by the use of that decision of 1933 still further to impose burdens on those who ought not to bear the tax.

10.47 p.m.

Mr. Radford: I hope my right hon. Friend the Chancellor of the Exchequer wi11 turn a deaf ear to the eloquent representations made by the right hon. Member for the Hillsborough Division of Sheffield (Mr. Alexander). He is an expert at conveying the impression that the Co-operative movement is an association of a lot of poor people who do a little mutual trading together, and you would not think, to hear the speech which he has just made, that the last balance sheet of the Co-operative Wholesale Society, which I have in my possession, shows a bank balance of £47,000,000, merely to mention one item. I had a considerable experience of the attitude of the Co-operative movement in 1933, and—

Mr. Alexander: Will the hon. Member produce the balance sheet which quotes that bank balance, or is he quoting the balance of bank deposits?

Mr. Radford: If the right hon. Gentleman will meet me in the "Aye" Lobby, I will produce the balance sheet to him. It is in my attache case, but I did not trouble to load myself with it now.

Mr. Garro Jones: I am sure the hon. Member has no intention to deceive the Committee, but is he suggesting that the Co-operative Wholesale Society has a cash balance of £47,000,000?

Mr. Radford: Yes. It is quite clear and there are no industrial concerns in our country with such a bank balance as that, yet there are appeals ad misericordiam from the Co-operative representatives that they shall be exempt from this tax because a number of their shareholders are small people below the Income Tax level.

Mr. Alexander: I am sure the hon. Member does not wish to give a false impression to the Committee, but obviously it is absurd to say that the Co-operative Wholesale Society have a cash bank balance of £47,000,000. What undoubtedly he means is the net balance of bank deposits in the separate banking department of the society, but that is owned by thousands and thousands of people—small depositors.

Mr. Radford: I have no desire, to any greater extent than the right hon. Gentleman, to convey a wrong impression. The £47,000,000 to which I am referring as the deposit and current balance of the Cooperative Wholesale Society general trading department at that date naturally appears as a liability of their banking department, but on the opposite side of the banking department balance sheet there is £57,000,000 of investments outside the Co-operative movement. The money is there. At any rate, it ill accords with the right hon. Gentleman's very strong statement that no co-operators wish to avoid their due measure of taxation, because in 1933—and it may well be the same now—they cried out before they were hurt. They made a tremendous shout about the it liability to taxation, and before the election I fought in that year was over two of the local co-operative societies announced in their monthly reports that they had been misinformed or had miscalculated what their position would be and that after the 1933 Budget proposals had become law they found that they would not be paying any more taxation than they did previously because of the allowance in respect of their Schedule A assessment. But they had made great lamentations.
The Prophet Jeremiah must have been the original Socialist co-operator. The justification for this N.D.C. tax being placed upon industry and trade instead of all the Income Tax payers is that £1,500,000,000 of public money is likely to be spent in the next five years on rearmament and that will naturally affect the trading and profits of every concern in the country, as the money goes into the wage-earners' pockets and then finds its way into the shops and warehouses. The Co-operative movement ought not to be in any way exempted, whether it is retail stores, wholesale stores, or manufacturing concerns which make clothing,

shoes, and so on which the workers will buy out of the wages contained in that £1,500,000,000, which will probably be 80 per cent. of the amount, namely, £1,200,000,000. That is the justification for my right hon. Friend levying the tax on industry to the exclusion of the Income Tax payers, and there is no reason why the Co-operative movement should be exempt any more than any other industrial concern.

10.54 p.m.

Mr. Woods: Without going into Scriptural matters, from my knowledge of the Prophet Jeremiah he must have been quite a cheerful brother compared with the hon. Member for Rushholme (Mr. Radford), because the very mention of co-operative societies, since 1933, seems to bring him to his feet immediately, and gives him an opportunity of displaying his complete lack of comprehension of the nature, functions, and operations of the co-operative movement. When this matter was discussed on an earlier occasion the benches opposite were loud in their protestation that the tax should be applied with justice, and the general principle was accepted that the incidence of the tax should bear some ratio to the income of the individuals affected. That is a principle which is universally recognised, that the amount to be paid should bear some relation to the capacity of the person called upon to pay it. When this is applied to the co-operative societies it is worth reminding ourselves, in spite of what the hon. Member for Rushholme says, that the overwhelming mass of members of co-operative societies are wage earners below the scale assessable for Income Tax purposes.
Although these co-operators are not subject to Income Tax, they will, because they are co-operators, be compelled to pay not only Income Tax but the National Defence Contribution. Probably no greater service could be extended to the unemployed than to incorporate them in a vast co-operative organisation. The unemployed person is entitled to every help the country can give him. With their small incomes they have no margin with which to make themselves richer, and the whole of their purchasing power should secure to them the whole value of the commodities they buy. The only way in which that can be done is through the co-operative system of mutuality. If that were done, however, they would be


subject to Income Tax and would have to contribute to this tax.
There are hundreds of thousands of unemployed people who find it a solid advantage to be members of the co-operative movement. There are, too, hundreds of thousands of old age pensioners who find the movement a blessing to them with their small spending powers. These people are being compelled to pay Income Tax and they will now also have to contribute to this tax. As against that, the Committee have agreed that private traders whose profits amount to £2,000, and in certain cases more, can be exempt. The professional classes, including the legal profession, many of them with incomes running into four figures, are also to be exempt. Accountants like the hon. Member for Rusholme (Mr. Radford), who has given evidence of his capacity to do the work, will be exempt, and will probably be paid in connection with this tax.

Mr. Radford: I can assure the hon. Gentleman that I am in favour of the proposals of the Government being altered to make professional men liable. I have already voiced that view to the Government.

Mr. Woods: I have not noticed any Amendment on the Paper. We are not, however, dealing with the hon. Member for Rusholme, who is small fry so far as this tax is concerned. It is a fact, however, that he will be exempt. He may have a grievance about it. I do not doubt his word, but if he is tumbling over himself to pay, I am sure that the Chancellor will not refuse a contribution from him. Shareholders in public utility companies and other companies where the rate of interest is controlled by Act of Parliament will also be exempt. The average income of the shareholders in such concerns is substantially higher than the average income of the average member of the Co-operative movement. We are not complaining that these people are exempted, but we say that on the basis of fair play and equity, if these concerns and professions are exempted, the Cooperative movement have a claim to be exempted. We are not whining. We are not asking for pity. We are just telling you. We on these benches feel that your attitude towards the Co-operative movement is very largely based on your lack of knowledge of its operations.

The Chairman: I would remind the hon. Member that he is addressing me.

Mr. Woods: Though I am addressing you, Sir Dennis, it is obvious that the information is needed on the benches opposite. It is true that as the Bill stands a small co-operative society will be exempt from the tax, in the same way as a small trader, but let the Committee note how absurd the arrangement is in the case of a small co-operative society. An old age pensioner in the London area may have joined the London Co-operative Society because it is the only society operating in his area—or may have joined the Royal Arsenal Society or the South Suburban Society—and such a person will have to make a contribution to this tax. Another co-operator living in a smaller community where the society is smaller will be exempt. There is no advantage to the individual co-operator in being a member of a large society. In some of the smaller societies the average shareholding is much higher than in some of the larger societies, and the rate of dividend is something higher, because a small society may have been in existence for many years and have reserves and so forth which put it in a position to give its members better services than can a larger society growing up in a new area.
It was argued in reference to Income Tax when that was applied to the Cooperative movement that it applies only to the undistributed profits. That may be true, but there is a world of difference between funds allocated to reserves by a co-operative organisation and funds allocated to reserves by an ordinary profit-making concern. When a concern trading for profits allocates funds to reserve it tends to increase the value of the shares of that concern. I understand that profit and loss on shares is not taken into account by the Income Tax authorities, so that the only way in which the Chancellor of the Exchequer could gain any advantage from the additional profits was to tax the reserves. In the Co-operative movement there is no advantage to the individual member financially on account of the reserves. His shares will remain at their value and are not affected in any way—his shares will be withdrawable and there is no advantage. Why does the Cooperative movement need reserves?

Mr. Gluckstein: I have been following the hon. Member's argument and accord-


ing to what he has just said the reserve in a co-operative movement appears to belong to no one at all. Is that what he tells us, or is it distributable to the members in the event of a winding-up?

Mr. Woods: No, it does not belong to anybody in particular. [HON. MEMBERS: "Oh."] That may sound startling, but it is so. The hon. Member can to-morrow join any co-operative society and participate in any of these advantages. It does not belong to the existing members, but is there in trust for the community. The hon. Gentleman can share in the advantage.
The point that I wished to make and which I think the Chancellor has not appreciated is as to why is it necessary for a co-operative society to allocate a certain proportion of profits to reserve so that it becomes subject to this tax. The reason is obvious. In the first place, any responsible board of a co-operative society has to carry on its business in such a way as to guarantee financial security to the investors. Secondly, the co-operative society is not merely a trading concern; it exists to carry on many functions which are carried on normally by religious and educational organisations. [HON. MEMBERS: "And political propaganda."] Yes, and political education, too. The people in this country require more than anything political education. [Laughter.] Whether there is any cause or not for that merriment, I can assure hon. Members that documents can be produced showing that thousands of classes are held all over the country for educational purposes and for social intercourse. In many areas the buildings of co-operative societies are not all fours with those of religious and educational organisations. On the one hand, religious and educational buildings are not subject to local taxation or rates, whereas those of cooperative societies are. When a society builds large central buildings which are of value to the movement, the buildings have far less value in the market, and it is necessary for the co-operative society to allocate to reserves an amount to cover that responsibility. Under existing legislation the whole of this work will be held up. The workers who build up this vast organisation for collective responsibilities of mutual trading and education, will be treated as profiteers.
I want to finish with a reference to one or two matters spoken about by the hon. Member for Rusholme (Mr. Radford). When he spoke about the millions of pounds in the Co-operative Wholesale Society, he should have divided that sum among the 8,000,000 members of the movement, and he would have found that the average holding is very small indeed. If the total holdings in the co-operative movement were put against the capital of other concerns which are to be exempted under this proposal, such as public utility companies, water, electricity and transport undertakings, he would have found that those already exempted total far more in volume than the figure which he said staggered his imagination.

Sir J. Simon: Sir J. Simon rose—

11. 10 p.m.

Mr. Barnes: I regret, in one way, that I have to precede the Chancellor. He may remember that, when we were discussing the Resolution he agreed to give more consideration to the point which I have in mind, when we came to the specific Amendment. I should now like to press further some of the points which I made on that occasion. In the first place, I want to emphasise that it is of little value to the Committee if we allow our prejudices for or against any type of trade to affect our judgment on a matter of taxation. This is obviously a tax placed upon profits, and that is the only excuse for it being introduced.
We have had a pronouncement from the Treasury Bench that the proportion of profits of an insurance company distributed back to the policy-holders will not be subject to this tax. Further, under Sub-section (3), all professions, and businesses connected with professions, will be exempt. The third point is that businesses whose profits are under £2,000 will also be exempt. Utility companies of a statutory kind will be exempt also from payment of this tax. Therefore, there are four grades of profit or income-earning sections of the community that are exempt from these particular tax proposals, and I think it is only right that we should consider in equity the grounds on which these four exemptions are permitted, and relate the grounds of those exemptions to building societies and industrial societies, in order to ascertain whether the case is not equally strong for the exemption of building societies and industrial and provident


societies. That is the main point of this Amendment; neither the hon. Member for Rushholme (Mr. Radford) nor anyone else need intervene on this occasion with regard to other matters.
In the Debate on the Resolution I submitted instances of transport companies that were earning large profits. I was not sure at that stage whether they would come within that class, and I submitted that question, but the Chancellor was unable to give a definite statement as to whether that type of transport companies—road passenger transport companies—making very large profits and making big distributions of bonus, were exempt under the clause. Let me give one or two cases of gas companies. I assume that there will be no dispute about these, but in any case we ought to have these points cleared up. In the case of the Altrincham Gas Company, their profits varied from 7 to 9¼per cent. in the case of the Ashton Gas Company from 13 to 17 per cent., and in the case of the Banbury Gas Company from 10 to 7 per cent. I could give a number of these cases, but do not wish to weary the Committee with a multitude of figures. These are just one or two of a large number of examples that I have in my possession.
Now let me state the case of a cooperative society on the same basis. Obviously, a utility company can only be exempted on the ground that the State imposes certain restrictions upon it. It has to discharge a service over a restricted area to a certain population, and generally speaking there is a limitation of profits governed by price. Let the Committee look at the restrictions which operate with regard to industrial and provident societies—restrictions which are imposed by legislation. In the first place, the co-operative society's capital, that is, the individual possession of capital, is limited to £200 per member. The rate of interest generally prevailing is about 3½ per cent. Compare that with the payment of interest in relation to price and service to the community of the large profits of utility undertakings, like transport and gas. When you compare the shareholders of the two different types of business, the reason why the State taxes at the source is because it is recognised as a general rule that the vast majority of shareholders

of these other companies are assessable to Income Tax and it becomes a matter of convenience both to the company, to the individual and to the Revenue to charge tax at the source. In the case of the co-operative society, even when the Income Tax law was altered to make it specially applicable to us and to destroy the principle of mutuality, it was recognised by the Treasury that the ordinary custom was quite inapplicable, and therefore tax was not imposed at the source but was collected from the recipient if he was assessable. It is well known that 70 to 80 per cent. of these people are not liable to Income Tax, and therefore the distribution of their small share is not subject to tax.
There is no distribution of bonus shares under the system of mutual trading carried out by industrial and provident societies. Compare that with the distribution of bonus shares of the utility companies that I have quoted. The shares of utility companies can exceed par value. The shares of the Underground combine and the Metropolitan Railway were quoted at £85 prior to merging into the London Transport Board. Within three years they had risen to £130. That can never happen to the shares of industrial and provident societies because of the legislation imposed by Parliament, which retains the principle that any citizen can join these organisations. The whole business of industrial and provident societies is carried out on a mutual basis and, although the law was altered for the purpose of imposing the tax on undistributed profits, it could not alter the fact that in the co-operative and provident and industrial society the member trades with himself and cannot create a profit in the ordinarily understood sense. The principle that you cannot create a profit by trading with yourself is governed and made a reality by the fact that surplus profits are given back to members in proportion to their trade. A profits tax does not fail unless profits are made, and, in the instance that the Chancellor of the Exchequer gave of a company making £10,000 profit, he said it would pay £2,500 in the ordinary way and the charge would be levied in addition.
What is ignored and is a very important point in this case is that a good deal of the proportion of the profit which will now be charged to a co-operative society arises from the fact that you bring back


that interest which should not bear this charge, and which goes to persons who are not in a sense taking any measure of profit. You bring that back into our accounts for the purpose of imposing this additional charge. The net effect of that is that in the case of the industrial and provident society the payment on the profit will not be 5 per cent. or a shilling in the pound, but will amount to more than that because in the case of a cooperative society you bring back that interest charge for the purpose of making profits. In the case of a private company that share interest is not affected by the tax which is being proposed. It has always been charged at the source and has been assessable for Income Tax, and therefore it does not alter the ratio but works out at a shilling in the pound on sales. I submit to the Chancellor of the Exchequer that on the basis of comparison with his exemptions and on the basis of the Resolution of the Government the co-operative society and the industrial and provident society have an overwhelming case for exemption, and we trust that the opposition that we have put up cannot be destroyed by argument and that the case will be met by the Chancellor of the Exchequer.

11.23 p.m.

Sir J. Simon: I am glad that I gave way to the hon. Gentleman, who not only speaks with very special knowledge of this subject, but who has put the case, as he said he would like to put it, without prejudice. He tried to state the matter as he sees it, and I am obliged to him. I will do the same because I think that, although this subject has in times past excited a good deal of feeling, and it is easy to become excited about it, it is worth calm consideration, and I will state to the Committee briefly why I think that this Amendment should be resisted. May I state one or two things which are not included in the hon. Gentleman's review but which it is useful to have on record? Of course, co-operative societies very often have to pay loan interest, and in the same way co-operative societies not infrequently have investment income. And it is important that it should be quite clear how those elements are dealt with in connection with this new scheme of tax. Under this scheme of tax, investment income is completely excluded from any calculation as to the figure upon

which the tax is charged. If a co-operative society, therefore, is drawing income from investments, which it sometimes is, that does not attract tax as such.
The second point which is important for all who are interested in co-operative societies is this. There is loan interest, as I said, interest on money lent to the society, and of course, that may be deducted. But from what may it be deducted? If the loan interest was not set off against the profit, and it was set off against the investment income, it would not be to the advantage of the co-operative society. The operation of the tax is this. Loan interest will be set off against what would otherwise be the profit and will, therefore, go to reduce the figure on which the charge will be made. These are not exceptional provisions in regard to co-operative societies, but they have to be borne in mind by hon. Members, because they want to advise their societies accurately as to what will be the effect of the tax. I dealt with this matter earlier in to-day's Debate by way of illustration, and having compared the position of an industrial company and a cooperative society who had made the same amount of profit, I pointed out why I thought the principle of the tax is fair.
It is true that for a long time the view which the law took was that the advantage which came to a co-operative society through its mutual dealings was not to be classed as profit subject to Income Tax. I am not saying that there may not be a great deal of theoretic justice in that view. At any rate, it was a well understood provision of the law. In 1920 I was asked to give an opinion on a matter affecting co-operative societies. The question then put to me was this: "Here is a tax described as a tax on profits. Will you tell us whether in your view, and with your knowledge of the law, this is a tax which will catch the co-operative societies?" The answer was, and I think it was perfectly accurate: "The law does not regard as profit for the purpose of such a tax as this, the advantage which co-operative societies make, and, therefore, we think that co-operative societies' gains"—I want to use a neutral word—" will be exempt." That was a perfectly correct opinion, and I hope it was worth the money.
What has happened in regard to National Defence Contribution? Years afterwards Parliament took up this sub-


ject and altered the law. I am not saying whether it was right or wrong. [Interruption.] I hope I have made it plain, even to the hon. Member, that when I was asked in 1920 whether seeing that the law was so-and-so, would so-and-so happen, I gave a correct answer. I am now pointing out that in 1933 the law was altered.

Mr. Jagger: The question that I wanted to ask was whether that opinion did not go further than saying that the law did not allow, but that the law should not allow.

Sir J. Simon: I am afraid the hon. Member mistakes the functions of a barrister. He is confusing a barrister, no doubt, with a spiritual adviser. If he wishes for spiritual advice I do not suggest that he should go to the Temple. But if you want to know what is in fact the position of the law, in that case it is a good thing to go to someone who knows something about it. In 1933 came the change in the law. The co-operative societies made a tremendous hubbub about it, but it has not inflicted the tremendous injury which they predicted, and I am glad that up to the present the co-operative societies have been able to stand it. When I have to propose a tax, I am asked to make it a simple tax, a tax which will collect enough money, and a tax which when it is applied to businesses shall be on the Income Tax principle. I have no desire to do any injustice to this great movement but I have to take things as I find them. I find that the profits which co-operative societies make are regarded by the Income Tax law as being open to taxation, and I cannot conceive of any principle on which I should be invited to exclude them from this tax. If you walk along a street in any great town you will see the fine magnificent building of the co-operative stores carrying on a busy trade, and in the same street the ordinary stores, the ordinary shopkeeper, selling the same articles at the same prices. When I am getting a National Defence Contribution I do not see on what grounds of justice I am to say to the ordinary shopkeeper,

"You must pay," and that this magnificent enterprise which is selling the same things to the same people at the same price is to be exempt. I really cannot see any grounds for it. The right hon. Gentleman in concluding his speech said that nothing that I could say would persuade him. Then we agree to differ, but I think that the majority of the Committee will agree that the Amendment ought to be resisted.

Mr. Oliver: The Chancellor of the Exchequer says that he is applying this tax on Income Tax principles. Will he say why in applying it to co-operative societies he excludes a large number of companies who do pay Income Tax, public utility companies, railway companies, and transport companies?

Sir J. Simon: That point has already been dealt with. It is for the Committee to decide whether they approve of the provision to exclude public utility companies which are under limitations as to their profits and the charges they can make for their services. Reference has been made to gas companies. I cannot answer here and now as to the particular gas company mentioned by the hon. Member, but the larger gas companies have to get a Board of Trade order which controls the conditions under which they provide gas and limits the charges they make. There are smaller gas companies which do not have to get an order, but I cannot tell the hon. Member whether the company he mentioned would come within the exemption or not, but if there should be a case which falls within the definition of a public utility company which has not been sufficiently closely restricted by the Bill, the remedy is to secure that it is restricted more closely. It is impossible in a tax of this sort to draw a distinction between one and the other on a ground such as that.

Question put, "That those words be there inserted."

The Committee divided: Ayes, 121; Noes, 179.

Division No. 248.]
AYES.
[11.35 p.m.


Adams, D. (Consett)
Attlee, Rt. Hon. C. R.
Brown, G. (Mansfield)


Adams, D. M. (Poplar, S.)
Banfield, J. W.
Buchanan, G.


Alexander, Rt. Hon. A. V. (H'lsbr.)
Barnes, A. J.
Burke, W. A.


Annum, C. G.
Barr, J.
Cape, T.


Anderson, F. (Whitehaven)
Broad, F. A.
Charleton, H. C.


Aske, Sir R. W.
Bromfield, W.
Cluse, W. S.




Cocks, F. S.
John, W.
Quibell, D. J. K.


Cripps, Hon. Sir Stafford
Johnston, Rt. Hon. T.
Richards, R. (Wrexham)


Daggar, G.
Jones, A. C. (Shipley)
Ridley, G.


Dalton, H.
Jones, Morgan (Caerphilly)
Ritson, J.


Davidson, J. J. (Maryhill)
Kelly, W. T.
Robinson, W. A. (St. Helens)


Davies, S. O. (Merthyr)
Kennedy, Rt. Hon. T.
Rowson, G.


Day, H.
Kirby, B. V.
Salter, Dr. A. (Bermondsey)


Dobbie, W.
Kirkwood, D.
Seely, Sir H. M.


Dunn, E. (Rother Valley)
Lansbury, Rt. Hon. G.
Sexton, T. M.


Ede, J. C.
Lathan, G.
Silkin, L.


Edge, Sir W.
Leach, W.
Silverman, S. S.


Edwards, Sir C. (Bedwellty)
Lee, F.
Simpson, F. B.


Fletcher, Lt.-Comdr. R. T. H.
Leonard, W.
Smith, Ben (Rotherhithe)


Gallacher, W.
Logan, D. G.
Smith, E. (Stoke)


Gardner, B. W.
Lunn, W.
Smith, T. (Normanton)


Garro Jones, G. M.
Macdonald, G. (Ince)
Sorensen, R. W.


George, Megan Lloyd (Anglesey)
McEntee, V. La T.
Stewart, W. J. (H'ght'n-le-Sp'ng)


Graham, D. M. (Hamilton)
McGhee, H. G.
Strauss, G. R. (Lambeth, N.)


Green, W H. (Deptford)
MacLaren, A.
Taylor, R. J. (Morpeth)


Greenwood, Rt. Hon. A.
Maclean, N.
Tinker, J. J.


Griffith, F. Kingsley (M'ddl'sbro, W.)
MacMillan, M. (Western Isles)
Viant, S. P.


Griffiths, G. A. (Hemsworth)
Mainwaring, W. H.
Walker, J.


Griffiths. J. (Llanelly)
Marshall, F.
Watkins, F. C.


Hall, G. H. (Aberdare)
Messer, F.
Watson, W. McL.


Hall, J. H. (Whitechapel)
Milner, Major J.
Welsh, J. C.


Harvey, T. E. (Eng. Univ's.)
Montague, F.
Westwood, J.


Henderson, A. (Kingswinford)
Morrison, R. C. (Tottenham, N.)
Whiteley, W. (Blaydon)


Henderson, J. (Ardwick)
Muff, G.
Wilkinson, Ellen


Henderson, T. (Tradeston)
Noel-Baker, P. J.
Williams, E. J. (Ogmore)


Hills, A. (Pontefract)
Oliver, G. H.
Windsor, W. (Hull, C.)


Holdsworth, H.
Paling, W.
Woods, G. S. (Finsbury)


Hopkin, D.
Parker, J.
Young, Sir R. (Newton)


Jagger, J.
Parkinson, J. A.



Jenkins, A. (Pontypool)
Pethick-Lawrence, Rt. Hon. F. W.
TELLERS FOR THE AYES.—


Jenkins, Sir W. (Neath)
Price, M. P.
Mr. Croves and Mr. Mathers.




NOES.


Acland-Troyte, Lt.-Col. G. J.
Davies, Major Sir G. F. (Yeovil)
Kerr, J. Graham (Scottish Univs.)


Agnew, Lieut.-Comdr. P. G.
Denman, Hon. R. D.
Keyes, Admiral of the Fleet Sir R.


Allen, Col. J. Sandeman (B'knhead)
Dorman-Smith, Major Sir R. H.
Kimball, L.


Anstruther-Gray, W. J.
Dower, Major A. V. G.
Lamb, Sir J. Q.


Apsley, Lord
Duckworth, W. R. (Moss Side)
Law, Sir A. J. (High Peak)


Assheton, R.
Duncan, J. A. L.
Law, R. K. (Hull, S.W.)


Baldwin-Webb, Col. J.
Eastwood, J. F.
Leighton, Major B. E. P.


Balfour, Capt. H. H (Isle of Thanet)
Eckersley, P. T.
Levy, T.


Balniel, Lord
Edmondson, Major Sir J.
Liddall, W. S.


Barclay-Harvey, Sir C. M.
Elliot, Rt. Hon. W. E.
Llewellin, Lieut.-Col. J. J.


Baxter, A. Beverley
Ellis, Sir G.
Lloyd, G. W.


Beamish, Rear-Admiral T. P. H.
Elliston, Capt. G. S.
Loftus, P. C.


Beaumont, M. W. (Aylesbury)
Elmley, Viscount
Mabane, W. (Huddersfield)


Beaumont, Hon. R. E. B. (Portsm'h)
Emrys-Evans, P. V.
MacAndrew, Colonel Sir C. G.


Boyce, H. Leslie
Errington, E.
Macdonald, Capt. P. (Isle of Wight)


Briscoe, Capt. R. G.
Erskine-Hill, A. G.
McKie, J. H.


Brown, Col. D. C. (Hexham)
Evans, Capt. A. (Cardiff, S.)
Maitland, A.


Brown, Rt. Hon. E. (Leith)
Evans, E. (Univ. of Wales)
Manningham-Buller, Sir M.


Brown, Brig.-Gen. H. C. (Newbury)
Fildes, Sir H.
Margesson, Capt. Rt. Hon. H. D. R.


Bull, B. B.
Fleming, E. L.
Markham, S. F.


Burghley, Lord
Furness, S. N.
Mayhew, Lt.-Col. J.


Butcher, H. W.
Fyfe, D. P. M.
Mellor, Sir J. S. P. (Tamworth)


Cartland, J. R. H.
Gluckstein, L. H.
Mills, Major J. D. (New Forest)


Carver, Major W. H.
Goldie, N. B.
Moreing, A. C.


Cary, R. A.
Grant-Ferris, R.
Morgan, R. H.


Castlereagh, Viscount
Gretton, Col. Rt. Hon. J.
Morrison, Rt. Hon. W. S. (Cirensester)


Cayzer, Sir H. R. (Portsmouth, S.)
Gridley, Sir A. B.
Muirhead, Lt.-Col. A. J.


Cazalet, Thelma (Islington, E.)
Gritten, W. G. Howard
Munro, P.


Channon, H.
Guest, Lieut.-Colonel H. (Drake)
Neven-Spence, Major B. H. H.


Christie, J. A.
Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)
Nicolson, Hon. H. G.


Clarke, F. E. (Dartford)
Guy, J. C. M.
O'Connor, Sir Terence J.


Clarke, Lt.-Col. R. S. (E. Grinstead)
Hannah, I. C.
Palmer, G. E. H.


Cobb, Captain E. C. (Preston)
Heilgers, Captain F. F. A.
Peaks, O.


Colfox, Major W. P.
Heneage, Lieut.-Colonel A. P.
Peat, C. U.


Colman, N. C. D.
Hepburn, P. G. T. Buchan-
Pickthorn, K. W. M.


Colville, Lt.-Col. Rt. Hon. D. J.
Hepworth, J.
Ponsonby, Col. C. E.


Conant, Captain R. J. E.
Herbert, A. P. (Oxford U.)
Procter, Major H. A.


Cooper, Rt. Hn. T. M. (E'nburgh, W.)
Higgs, W. F.
Radford, E. A.


Cox, H. B. T.
Holmes, J. S.
Ramsay, Captain A. H. M.


Craven-Ellis, W.
Hope, Captain Hon. A. O. J.
Ramsbotham, H.


Critchley, A.
Hopkinson, A.
Rankin, Sir R.


Crooke, J. S.
Hudson, Capt. A. U. M. (Hack., N.)
Rayner, Major R. H.


Croom-Johnson, R. P.
Hume, Sir G. H.
Reed, A. C. (Exeter)


Cross, R. H.
Hunter, T.
Reid, J. S. C. (Hillhead)


Crossley, A. C.
Jones, Sir H. Haydn (Merioneth)
Reid, W. Allan (Derby)


Crowder, J. F. E.
Jones, L. (Swansea W.)
Remer, J. R.


Cruddas, Col. B.
Keeling, E. H.
Rickards, G. W. (Skipton)




Robinson, J. R. (Blackpool)
Somervell, Sir D. B. (Crowe)
Ward, Irene M. B. (Wallsend)


Ropner, Colonel L.
Spent, W. P.
Waterhouse, Captain C.


Ross Taylor, W. (Woodbridge)
Stanley, Rt. Hon. Oliver (W'm'l'd)
Wells, S. R.


Rowlands, G.
Strauss, H. G. (Norwich)
Whiteley, Major J. P. (Buckingham)


Russell, Sir Alexander
Strickland, Captain W. F.
Williams, H. G. (Croydon, S.)


Salmon, Sir I.
Stuart, Hon. J. (Moray and Nairn)
Wiss, A. R.


Sail, E. W.
Sueter, Rear-Admiral Sir M. F.
Womersley, Sir W. J.


Savery, Sir Servington
Tate, Mavis C.
Wragg, H.


Selley, H. R.
Taylor, Vice-Adm. E. A. (Padd., S.)
Wright, Squadron-Leader J. A. C.


Shaw, Major P. S. (Wavertree)
Thomas, J. P. L.
Young, A. S. L. (Partick)


Shaw, Captain W. T. (Forfar)
Thornton, Sir J. D. W.



Simon, Rt. Hon. Sir J. A.
Touche, G. C.
TELLERS FOR THE NOES.—


Smith, L. W. (Hallam)
Wakefield, w. W.
Lieut.-Colonel Sir A. Lambert


Smith, Sir R. W. (Aberdeen)
Walker-Smith, Sir J.
Ward and Captain Dugdale.


Resolution agreed to.

Ordered, "That the Chairman do report Progress; and ask leave to sit again."—[Captain Margesson.]

Committee report Progress; to sit again To-morrow.

Orders of the Day — AGRICULTURE [MONEY].

Resolution reported;
That it is expedient—

(1) to provide for the making, in accordance with a scheme, of contributions out of moneys provided by Parliament towards the cost incurred during a period ending not later than the thirty-first day of July, nineteen hundred and forty-two, by occupiers of agricultural land in acquiring and transporting lime or basic slag for improving the fertility of their land, and for the payment out of moneys provided by Parliament of any expenses incurred in connection with the said scheme;
(2) to provide that, in the event of the United Kingdom price per hundredweight of home-grown oats harvested in nineteen hundred and thirty-seven or in any of the four following years falling short of eight shillings by five pence or more, there may be paid out of moneys provided by Parliament a subsidy in respect of land in the United Kingdom which was under oats or under barley in the year in question, at a rate not exceeding one pound for each acre of such land, but also to make provision for securing—

(a) that the total amount which may be paid by way of such subsidy by reason of land having been under oats or under barley in any year after nineteen hundred and thirty-seven shall not exceed the amount which might have been so paid if the acreage of such land qualifying for subsidy in respect of the year in question had not exceeded by more than one-tenth the acreage of such land which qualified for subsidy in respect of the year nineteen hundred and thirty-seven; and
(b) that deficiency payments under the Wheat Act, 5932, shall not be payable in respect of any wheat harvested in any particular year if the land on which the wheat was grown was at any time during the first eight months of that year comprised in a farm in relation to which the occupier elects to become eligible for the said subsidy in respect of that year;
and to provide for payment out of moneys provided by Parliament of such sums as may

be determined to be required for defraying expenses incurred by the Wheat Commission in performing functions in connection with the said subsidy;
(3) to raise the limit of the quantity of wheat in respect of which deficiency payments may be made under the Wheat Act, 1932, at the full rate;
(4) to provide for the payment out of moneys provided by Parliament of grants towards expenditure incurred during a period ending not later than the thirty-first day of July, nineteen hundred and forty-two, by drainage authorities in England (other than catchment boards and the councils of county boroughs which have not established agricultural committees) in the exercise of their functions in carrying out drainage schemes;
(5) to provide for the payment out of moneys provided by Parliament of grants towards expenditure by owners or occupiers of agricultural land in Scotland on the drainage thereof;
(6) to provide as respects Great Britain for the functions of veterinary inspectors (or veterinary officers) under the Diseases of Animals Acts, 1894 to 1935, under any enactments relating to milk or to dairies and under any arrangements made by virtue of Section nine of the Milk Act, 1934, being discharged by veterinary inspectors appointed by the Minister of Agriculture and Fisheries (hereinafter referred to as 'the Minister');
(7) to provide for expenditure out of the Cattle Pleuro-Pneumonia Account with the object of eradicating so far as practicable diseases of animals in Great Britain;
(8) to repeal Section nine of the Milk Act, 1934, and, in substitution therefor, to provide for the payment out of the Cattle Pleuro-Pneumonia Account during a period ending on the first day of February, nineteen hundred and forty-one, of payments to the owner of any herd of cattle for the purpose of securing so far as practicable that the herd will be free from tuberculosis, and for requiring boards administering milk marketing schemes to make payments after the end of the period aforesaid to registered producers in respect of milk produced by them, in such circumstances as may be prescribed, for the purpose of securing so far as practicable that herds will be free from tuberculosis;
(9) to afford facilities for having poultry tested and examined free of charge with a view to promoting the breeding and distribution of stocks of poultry which are free from disease, and for the payment of any


expenses incurred for that purpose out of the Cattle Pleura-Pneumonia Account or out of moneys provided by Parliament;
(10) to authorise the Minister to make arrangements with any local authority whereby the services of veterinary inspectors may be placed for agreed purposes at the disposal of the authority and to make charges in respect thereof;
(11) to make provision for the superannuation rights of veterinary inspectors transferring from local authority service to the Civil Service;
(12) to provide for the payment to the Exchequer of fees received by any Government Department in connection with the matters aforesaid;
(13) to provide for adjustments as to the payment out of moneys provided by Parliament or out of the Cattle Pleuro-Pneumonia Account respectively of certain expenses under the Diseases of Animals Acts, 1894 to 1935; and
(14) to make provision for purposes connected with the matters aforesaid."

Bill ordered to be brought in upon the said Resolution by Mr. W. S. Morrison, the Chancellor of the Exchequer, Mr. Elliot, and Sir Samuel Hoare.

Orders of the Day — AGRICULTURE BILL,

"to assist farmers to increase the fertility of their land; to provide for payment of a subsidy to farmers in respect Of their crops of oats and barley, and to raise the limit of the quantity of wheat in respect of which deficiency payments under the Wheat Act, 1932, may be made at the full rate; to make further grants for land drainage; to promote the eradication of diseases of animals and poultry, and with that object to establish a national service of veterinary inspectors; and for purposes connected with the matters aforesaid," presented accordingly, and read the First time; to be read a Second time To-morrow, and to be printed. [Bill 178.]

The remaining Orders were read, and postponed.

It being after half-past Eleven of the Clock, Mr. SPEAKER adjourned the House, without Question put, pursuant to the Standing Order.

Adjourned at Thirteen Minutes before Twelve o'Clock.